In the case, of Goa Auto Accessories v. Suresh Saluja (decided on December 12, 2019), the National Company Law Tribunal, Mumbai Bench ("NCLT") held that a resolution professional ("RP") could seize a corporate debtor's assets that were the subject of litigation in order to facilitate the Corporate Insolvency Resolution Process ("CIRP") under the Insolvency and Bankruptcy Code, 2016 ("IBC").
In the instant case titled Goa Auto Accessories v. Suresh Saluja, the issue raised for clarification before the NCLT was:
Is it possible for the NCLT to order possession of Goa Auto's property in order to facilitate the CIRP and allow the RP to take custody of it while the suits brought by Goa Auto and the Applicant are being decided?
With regard to this issue, it was determined that the NCLT alone had jurisdiction over applications and legal actions brought by or against corporate applicants who were subject to the IBC. As a result, no other forum has the authority to consider or resolve any such applications or procedures. If it were decided that a civil court also possessed jurisdiction, this would open the door to tricks meant to sabotage the dispute-resolution procedure. It was determined that the IBC granted the NCLT authority to consider the dispute raised in the lawsuit by a plain reading of sections 60(5)(b) of the IBC (the NCLT shall have jurisdiction to entertain/dismiss any claim made by or against the corporate debtor) and (c) of the IBC (the NCLT shall have jurisdiction to entertain or dismiss any question of priorities, law or facts, arising out of the insolvency resolution or liquidation proceedings).
In addition, the National Company Law Appellate Tribunal ("NCLAT") was exempt from the civil court's authority under IBC Section 63 (civil court not to have jurisdiction). The IBC's Section 231 (bar of jurisdiction) forbade civil courts from issuing any injunctions in connection with actions conducted or in response to orders made by the IBC's adjudicating authority. Therefore, when issues were covered by the IBC, the civil court's jurisdiction was disregarded, according to a combined reading of the aforementioned IBC articles. Additionally, it was highlighted that the IBC was a self-contained code that granted the NCLT oversight authority over the whole CIRP. If a civil court and the NCLT issued opposing orders, the rules of comity would be compromised. The execution of the CIRP would ultimately suffer from such a course of action.
After his term ended, it was claimed that the RP's office had become functus officio, and that the RP had subsequently been appointed as a liquidator. The RP did not take any action to change his status after the same. A liquidator had the authority to seize or control all of Goa Auto's assets, property effects, and actionable claims, subject to the directives of the adjudicating body under section 35(1)(b) of the IBC. The NCLT noted that the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, contained similar provisions as well. Importantly, the IBC's non-obstante clause under section 238 allowed it to take precedence over anything incongruous with any other law. It was noted that there were two active lawsuits: one brought by Goa Auto seeking, among other things, custody of the Property; and (ii) one brought by the Applicant requesting money back from Goa Auto. It was noted that no restraint orders had been issued in relation to either of the aforementioned lawsuits. As a result, it was decided that the IBC provisions might be applied to the RP's request for possession of the Property before the adjudicating body in light of the CIRP judgement.
The suit for recovery of possession brought by Goa Auto was deemed to be ongoing in light of the moratorium, even if the litigation filed by the applicant was temporarily delayed. The NCLT further noted that the RP had submitted an application to liquidate Goa Auto in accordance with section 31 of the IBC because he had not yet received a settlement plan. Thus, the NCLT ordered that the RP/liquidator be permitted to take possession of the Property from the Applicant in light of the overriding power provided by section 238 of the IBC.
The NCLT categorically stated that,
“The applicant has also filed his claim before the Resolution Professional and has subjected himself to the jurisdiction of the CIRP. His claim was rejected by the RP. In view of the moratorium, the suit filed by the applicant temporarily stayed, but the suit filed for recovery of possession filed by the corporate Applicant would be deemed to continue. With the given factual matrix,the CIRP period of 270 days having come to an end, the office of IRP has become functus officio. Thereafter, the resolution professional filed an application to liquidate the company under section 31 of the Code as noresolution plan was received by him. Be that as it may, the tenure ofResolution Professional has come to an end and he has been appointed as liquidator by this Court. The Resolution Professional has not taken steps to amend his status as a liquidator.”