- Bench: Justice Ms. Malhotra, Ajay Rastogi
- Appellant: Mr. Anand Rao Korada
- Respondent: M/s. Varsha Fabrics (P) Ltd. & Ors.
Issue
• Was the HC right in proceeding with the auction of the Corporate Debtor, once the proceedings under IBC had commenced?
• What are the provisions under Section 231 of IBC for civil courts to pass orders in respect of any matter?
Facts
• The present appeal has been filed by the Appellant to challenge the interim orders passed by the Odisha HC in W.P. (Civil) No. 7939/2011.
• This Court 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.
• As per the Share Purchase Agreement, one of the respondents divested its 100% shareholding in Respondent No. 4 in favour of Respondent Nos. 1 to 3. Respondent No. 4 shut down its factory. Subsequently, Respondent Nos. 1 to 3 sold their stake in Respondent No. 4 to Indo Wagon Engineering Ltd.
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• Respondent no.13 filed writ petition before HC praying inter-lia for the cancellation of the Share Purchase Agreement and payment of the arrears and current salaries of the workmen. Respondent No. 13 filed another writ petition for payment of their dues before the Odisha High Court.
• The HC ordered for auctioning of the assets for recovering the dues. During the pendency of proceedings before the High Court, a Financial Creditor filed a Petition under Section 7 of the IBC, 2016 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 NCLAT admitted the insolvency petition and declared a moratorium in accordance with the provisions of Sections 13 and 15 of the IBC. The appellant through this appeal challenged the order of the Odisha HC to stay the auctioning process since the CIRP against Respondent No. 4 had commenced.
Appellant's Contentions
• The appellant contended that under Section 231 of IBC the civil courts had no jurisdiction and the jurisdiction vest exclusively with the NCLT and the NCLAT.
• The petition maintained for the pause of auctioning of the assets. The counsel representing the Appellant – Resolution Professional, reserved his right to raise all pleas and contentions, including the plea of locus standi .
Respondent's Contentions
• The Counsel raised serious objections to the stay of the auction proceedings. He sought permission to apply to the appropriate authority for deciding the objections raised by Respondent No. 8.
Judgement
The court set aside the order of the Odisha HC, thereby allowing the appeals.
Relevant Paragraphs
"As a consequence, we 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."
Section 231 of IBC, Bar of jurisdiction. – No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority or the Board is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority or the Board under this Code.”
