M/s. K A Somasekharan vs M/s. Kotak Mahindra Bank Limited Vs Vibin Vincent

(Hybrid Mode)

[ORAL JUDGMENT: Justice Sharad Kumar Sharma, Member (Judicial)]

The Appellant, who is Corporate Debtor, the suspended Independent Director of M/s Inditrade Business Consultants Limited, questions the validity of the impugned order dated 10.10.2025 by virtue of which, it had consequentially resulted into an admission of the Corporate Debtor into the CIRP process. There are various factual aspects which has been brought on record and argued too by the Ld. Senior Counsels for the parties.

Ld. Senior Counsel for the Appellant has confined his argument from the context that, "as to whether there could be any justification for initiation of proceedings under Section 7 of the I & B Code, 2016, in the absence of there being a crystallization of debt, which is a condition precedent for admission of the Corporate Debtor into the process of CIRP".

For the aforesaid purpose, the Ld. Senior Counsel for the Appellant in elaboration of his argument, has referred to the undertaking given by the Respondent No. 1, the Financial Creditor before the Hon'ble High Court of Bombay which has been recorded in its judgment dated 25.03.2025 in Commercial Appeal No. 1713/2024 in para 21.2. The said paragraph is extracted hereunder:-

The statement made by the learned counsel appearing for the defendant no. 1 Bank is accepted by this Court as an undertaking given to this Court.

Ld. Senior Counsel for the Appellant argues that since the undertaking has been given by the Respondent/Financial Creditor as recorded above, until and unless the parameters prescribed by way of an undertaking given before the Hon'ble High Court of Bombay, are satisfied, the debt cannot be taken to be determined or crystalised, no proceedings under Section 7 of the I & B Code, 2016, and in that eventuality, the entire proceeding can be initiated under Section 7 of the I & B Code, 2016, would stand vitiated.

In response to this, the argument extended by the Ld. Senior Counsel for the Respondent, Mr. E. Om Prakash, is to the effect that, after the alleged fire accident on 14.05.2023, there was a revised agreement, containing a modified sanction, executed on 14.09.2023, and that the same has been taken as to be the basis for determination of the debt and that the claim of non-crystallization of debt is without basis.

The question which would be falling for consideration is that as to whether at all, the observation which had been made by the Hon'ble High Court of Bombay in its para 21.2 as extracted above in a miscellaneous civil appeal arising from an interlocutory order, recording an undertaking, could at all be taken into consideration and extracted for the purposes to substantiate the argument that the CIRP proceedings lacked a determination of debt owing to the said undertaking. It is not in controversy that the proceedings before the Hon'ble High Court of Bombay has been carried, as a consequence of the order dated 11.06.2024 which was passed in a commercial court proceedings of Commercial Suit No. 48 of 2024, whereby the interlocutory application for grant of interim relief preferred in those proceedings stood rejected and which later on, stood affirmed by the dismissal of the appeal by the Hon'ble High Court of Bombay on 25.03.2025.

The miscellaneous civil appeal under Section 13 of the Commercial Courts Act, as preferred before the Hon'ble High Court of Bombay, was emanating from an order that was passed by the commercial court in a regular suit, where the relief sought by way of temporary injunction in the principal suit was not completely granted, and rather there was a modified relief, which was only granted by the City Civil Court to the effect that "the Defendant No. 1 bank not to take any coercive action against the Plaintiff, except by following due procedure of law". This observation made in the order passed by the Civil Court on 11.06.2024, yet again cannot be said to have shut the doors for subsequent proceedings or any other collateral proceedings, for determination of an independent controversy, because the order takes the shape of being of an interlocutory nature, which was not deciding a right or a lis between the parties.

Hence, any finding which has been recorded either in the order of commercial Court/City Civil Court dated 11.06.2024, or in the Hon'ble High Court of Bombay judgement of 25.03.2025 will not attach finality to the finding recorded therein, and that too, particularly when it is recorded in the shape of an undertaking, which in its ultimate decision was not having any bearing. On the company petitions it is a settled law that interlocutory proceedings in a regular civil suit and a consequential miscellaneous appeals are restricted and limited to be read in a restricted manner only for the purposes of a limited subject in the application which was under consideration before the Ld. City Civil Court.

It has been consistently held in judicial forums that any adjudication made or any finding recorded in any interlocutory proceedings, even when it is on the merits of the claim or right of the parties, will not attach any finality or will affect the right of the parties, jeopardizing their right to litigate or to establish their case in the main proceedings before the regular Court or in any other proceedings. In the case at hand, it is not the argument of the Appellant that the suit itself has been decided on merits, because admittedly that is still pending consideration, yet to be decided on merits.

Thus, we are of the considered view that in the given set of circumstances, the finding of the commercial court in the proceedings before it cannot be restrictively extracted to be read or interpreted for deciding the Section 7 application, particularly when it is being limited to be extracted to be applied, only relation to the undertaking which had never attained finality in the proceedings before the commercial courts.

Logically, if we take into consideration the controversy from the legal perspective, as to how the order of the Hon'ble High Court of Bombay, could at all be read for the purposes of deriving an aspect of conclusive determination of a debt, it is apparent that, the proceedings before the commercial court, was exclusively in forum a prayer in the nature of a mandatory injunction. But be that as it may, we are not required to remark or judicially embark upon the relief sought therein the suit before commercial court, owing to the fact that the proceedings before the commercial court are still pending consideration and that has to be decided on its own merits. We'll have to look into the interim order, which was made as a subject matter before the Hon'ble High Court of Bombay, exclusively in context of notice of motion in the commercial suit, and non-grant of the interim relief in those proceedings, challenge to which stood rejected in the miscellaneous appeal by the Hon'ble High Court of Bombay.

The question, which emerges for consideration is that orders issued in any interlocutory proceedings, even if it has been affirmed in an appeal, which is a miscellaneous appeal, and not a regular appeal deciding rights of the parties against the final order, will only attach a finality to the interlocutory proceedings and any finding, which has been recorded therein would have to be exclusively confined to be read for the purposes of deciding the issue in relation to the grant of the interim order, in the commercial court proceedings. In that eventuality, the relevant portion of the finding recorded in those proceedings cannot be used by the Appellant, in a CIRP proceedings and the appeal arising out of it to support his contentions that the aspect of determination of debts stands settled owing to the undertaking given therein, that the debt is yet to be crystallized, because of the impact of the said undertaking and hence Section 7 of the I & B Code, 2016, proceedings would be bad in the eyes of law.

We are also of the view that, owing to the fact that the proceedings before the Hon'ble High Court of Bombay, was initiated as against the order dated 11.06.2024, passed in an interlocutory applications in the Commercial Suit No. 48/2024, any finding recorded therein can only be confined to be read, for the purposes of the subject of the proceedings before the commercial courts and that cannot be utilised and borrowed to be applied for the purposes of proceeding under Section 7 of the I & B Code, 2016, which is independent altogether, arising out of an independent and special statute.

The finding recorded in the order 25.03.2025, also cannot be extracted to be borrowed, for the proceedings under Section 7 of the I & B Code, 2016, the reason being that ultimately it has ultimately resulted into dismissal of the Miscellaneous Commercial Appeal by the judgment passed on 25.03.2025. In that eventuality, there are two embargoes which will act against the Appellant, which are detailed below:

Even though Ld. Senior Counsel for the Appellant has attempted to use the undertaking given by Financial Creditor before the Hon'ble High Court of Mumbai to controvert the factum of existence of debt, Ld. Adjudicating Authority has maintained in the para 20 and 21 of the impugned order, that the proceedings before the Commercial Court pertain to wrongful debts, damages and insurance settlements and they do not seek to challenge the existence of financial debt & default and that the same is an established and admitted fact as revealed from the communication made by the Corporate Debtor itself.

The finding, which has been recorded, in the impugned order, particularly that as contained in para 21, categorically states that the Corporate Debtor, admittedly in his own communication has acknowledged the outstanding liability. Under these circumstances, in the light of the judgment of Dena Bank, and particularly in light of the observation, made in para 142 of the said judgment, acknowledgement of the liability by the Corporate Debtor will amount to establishment of an admitted debt which needs no subsequent and independent determination and, when it has been an admitted fact, no other aspect or parameter or procedure known to law is required to be considered for the purposes of initiation of proceeding under section 7 of the I & B Code, 2016.

The Ld. Senior Counsel for the Appellant has confined his argument to the controversy of whether the debt has crystallized, in view of the implications flowing from the observation made by the Hon'ble High Court of Bombay, judgment.

We are of the view that the question raised by the Ld. Senior Counsel for the Appellant is to be answered in negative and, that the said undertaking cannot be interpreted to reach a conclusion that the debt is yet to crystallize and hence the proceeding under Section 7 of the I & B Code, 2016, is vitiated. As already dealt with by this Appellate Tribunal, once the Appellant himself has admitted the liability it will be an admission of owed debt, and therefore, the initiation of Section 7 proceedings cannot be doubted in any manner whatsoever.

Hence, the 'appeal' lacks merit, and the same is accordingly 'dismissed'.