Mahendra Kumar Singhi vs Mr. R.S. Doddabyregowda & Ors.

[Oral Judgment: Justice Sharad Kumar Sharma, Member (Judicial)]

Heard Ld. Counsels for the parties. These are three Company Appeals, which have the same genesis and engaging consideration of almost a common controversy, which are interlinked with one another, and hence, for the purposes of brevity, they are being decided together.

As far as Company Appeal (AT) (CH) (Ins) No.445/2023 is concerned, the Appellant who happens to be the suspended director of the Applicant (the Corporate Debtor i.e., M/s. Steel Hypermart India Private Limited) to the proceedings under the Section 10 of I & B Code, 2016, challenges the impugned order passed in IA No. 151/2023 in CP(IB) No. 216/BB/2020, by virtue of which the Ld. Adjudicating Authority, had vacated the Interim Order, which already stood granted on 01.07.2022, in the nature of directing the parties to maintain status quo in the CIRP Proceedings of M/s. Steel Hypermart India Private Limited (the Corporate Debtor).

Primarily, the Ld. Counsel for the Appellant submits that, the order of vacation of the status quo order, happens to be in contravention to the principles of audi alteram partem, as the Appellant was not heard prior to passing the said order. However from a reading of the impugned order, it is seen that the principles of audi alteram partem, is, quite explicitly shown to have been followed because when the application IA No. 151/2023 was itself presented before the Ld. Adjudicating Authority on 10.11.2023, the objection filed by the Ld. Counsel for the Appellant/Petitioner was considered therein and finding was recorded in para 4 of the Impugned Order. In fact, the reason which has been assigned by the Ld. Adjudicating Authority, for vacating the interim order has been the Resolution Professional is unable to execute the activities connected with CIRP in a timebound manner and the steps taken by him to procure the goods, that were received by the tax authorities are being hindered, owing to the grant of status quo order by the Tribunal on 01.07.2022.

It is needless to observe that, the basic guiding principle for considering the grant of an order of status quo is absolutely a discretionary power, which has been vested with the Ld. Adjudicating Authority or any courts created under the statute, to grant a status quo order after being satisfied with the reasons which would be necessitating the grant of an interim order, so as to protect the subject matter of the judicial proceedings, as it has been laid down in the judgment of the Hon’ble Apex Court, as reported in (2004) 8 SCC 488 matter of Maharwal Khewaji Trust (REGD), Faridkot Versus Baldev Dass in its para 10. Para 10 is extracted hereunder: -

At the stage of granting the interim order of 01.07.2022, the Ld. Tribunal has exercised its inherent discretionary powers, and at that stage, the opposite party to the proceedings was not able to avail the opportunity to object to the grant of interim order.

It is only when the entire facts were brought on record by the Opposite Party/Respondent before Tribunal, by raising their objections and by narrating the impediments, which were being created in the CIRP proceedings due to the operation of the status quo order of 01.07.2022, the Ld. Tribunal, while exercising its discretionary power and recording its findings, revisited the order of 01.07.2022, which is within its power since the order being challenged is interlocutory in nature, and vacated the status quo order.

It cannot be said that the Ld. Tribunal has not applied its mind as argued, before vacating the interim order dated 01.07.2022, as the contention of the Appellant and the Respondent/Resolution Professional have been discussed in the order.

A very peculiar question which has been raised, and which requires consideration is as to how, the courts created under the statute which could exercise their inherent powers. Normally such courts would exercise their inherent powers, subject to the condition that they are restricted within the ambit and scope of such powers which has been vested under the statute. Power to grant relief at an interim stage, is normally by virtue of a creation of a statute, and not by virtue of exercise of powers under the Residuary provision, as it has been done in the instant case, by attracting the provisions contained under Section 60(5) of the I & B Code, to be read with Rule 11 of the NCLT Rules of 2016, which, in accordance with the language used in itself, under Section 60(5) of the I & B Code, 2016, could be exercised for the purposes of, considering an application by or against the Corporate Debtor, in a proceeding which is pending consideration, and in relation to any claim to be made by or against the Corporate Debtor or a Corporate Person.

And lastly, it will be a question of propriety, as to whether, during the insolvency proceedings, the powers contained under Section 60(5) of the I & B Code, 2016, could be stretched to be read as if it was or could have been an inherent power, that was being exercised by, a court of preliminary jurisdiction, which was trying an issue at its preliminary stage. Even assuming for the time being that, such power could be exercised, it has to be borne in mind that, as it has been settled by the Hon’ble Apex Court, the power to grant an interim order is not unfettered. The Court created under law dealing with individual rights would have to exercise its powers of granting the stay/status quo, only after considering the facts and circumstances of the case, and also its consequential effect on the litigation, and after assigning, reasons that would reflect application of mind by the court and fairly indicate on what grounds such interim order is granted.

We are of the view that a residuary power, which are granted to the courts under a statute, is designed to meet certain judicial and procedural contingencies, to ensure smooth functioning of the Tribunal and the proceedings therein as contemplated under a statute and that it should not be utilized to be exercised for passing of an order of an interim nature, which creates an impediment in the proceeding itself that too in a proceedings where time plays a pivotal role. In that eventuality, the appellant cannot really have a say. Further, contrary to his claim that he was not heard at the stage when the interim order was vacated, it is clearly evident from bare reading of the order itself that Ld. Adjudicating Authority has assigned reasons in Para 3 & 5 of the impugned order as to why and under what circumstances the interim order was required to be vacated. In this context, it would not be out of context to observe that the order which was sought for, that is, vacation of the status quo order under Section 60 (5) to be read with Rule 11, was itself a subject matter in certain interim applications filed earlier in the impugned order and has been referred therein being IA No. 226/2022, 227/2022 & 228/2022.

Thus, continuance of an interim order, is obviously an exercise of the discretionary powers of the Tribunal given the facts and circumstances and when the same has been vacated, after assigning reasons the same cannot be judicially faulted in any manner, more particularly, if the same is read in the context of, the order passed on 18.12.2023, on IA No. 226/2022, 227/2022 & 228/2022, in relation to the issues which we would be dealing with henceforth. The relevant excerpt of the order dated 18.12.2023, which deals with the implications of IA No. 151/2023, is extracted hereunder: -.

It was as a consequence of the implication of the orders which was passed on IA No. 151/2023, which is impugned in the instant appeal, that the IA No. 226/2022 was directed to have been rendered infructuous. Be that as it may, we, at this stage, are not required to go into the intricacies of the matter, when the Tribunal while exercising its discretionary powers for considering the necessity of continuance of an interim order (i.e., vacation of status quo order dated 10.11.2023) granted by it, has, exercising its residuary jurisdiction under Rule 11 to be read with Section 60 (5) of I & B Code, 2016, has rightly vacated the said interim order after assigning reasons.

The vacation of the status quo order has also to be seen in the context of alleged conduct of the Appellant, as argued by the other side that the Appellant has been engaged in delaying the proceedings despite the fact that the proceeding has been initiated by the Appellant himself under Section 10 of I & B Code, 2016, by forum shopping, and by invoking the jurisdiction of the Writ Courts seeking reliefs with clever modulations, so as to, obstruct the proceedings under Section 10 of I & B Code, 2016. At this stage, we are refraining ourselves from making any observations with regard to the implications of the proceedings of the writ petition and its sustainability because that would be falling within an exclusive domain of the Hon’ble High Court where writs are pending to be ventured into. For the reasons as assigned above, the vacation of the interim order granted on 01.07.2022 by the impugned order, which is under challenge in the instant company appeal does not call for any interference in the exercise of our Appellate Jurisdiction under Section 61 of I & B Code, 2016. The ‘appeal’ lacks ‘merit’, and the same is ‘dismissed’, accordingly.

We will now proceed to deal with the connected Company Appeal (AT) (CH) (Ins) No.57/2024, where the Appellant questions the order, dated 18.12.2023, as it was passed in IA No. 226/2022 in CP(IB)216/BB/2020. The impugned order in IA No. 226/2022 has to be read with IA No. 151/2023, which was the subject matter in Company Appeal (AT) (CH) (Ins) No.445/2023. But the context in which the Company Appeal (AT) (CH) (Ins) No.57/2024 is being argued, as per the pleading which had been raised by the Appellant in the company appeal, it was with regards to the implications of the relief sought for, i.e., for withdrawing the invitation of Expression of Interest (EoI) issued on 13.05.2022, and to re-issue it after the valuation of the properties of the Corporate Debtor. The Ld. Tribunal while passing the impugned order, on the said IA No. 226/2023, has observed that, in view of the order passed in IA No. 151/2023 on 10.11.2023 wherein the Resolution Professional has been directed to get valued all the assets of the company and invite proper EoI, the prayer sought in the application IA No. 226/2022 is taken care of and therefore the said application IA No. 226/2022 becomes infructuous.

As far as this aspect is concerned, the Ld. counsel for the Respondent has submitted that, the invitation of Expression of Interest (EoI), will not have any adverse bearing on the insolvency resolution proceedings and she has drawn the attention of this Appellate Tribunal to the various dates, which have been prescribed in the Form C, and she has submitted that, since the last date of receipt of the Expression of Interest (EoI) had already expired before the filing of IA No. 226/2022, the same couldn't have been directed to be kept at abeyance or, withdrawn, by passing of an order in the said IA. Further, the impediment against proceeding further with the EoI process which was created by the grant of the status quo order has since stands eradicated and therefore, there is no legal obstacle, as such as of now, to refrain from the process of invitation of Expression of Interest (EoI), in order to, carry forward the proceedings under Section 10 of the I & B Code, 2016. Hence, we do not find any reason to interfere in the impugned order passed by the Ld. Adjudicating Authority in IA No. 226/2022 in CP(IB) No. 216/BB/2020. The ‘appeal’ lacks ‘merit’, and the same is accordingly ‘dismissed’.

Now, the Company Appeal (AT) (CH) (Ins) No.59/2024 is left to be dealt with when there is a challenge given to, the Impugned Order of 18.12.2023, as it was passed in IA No. 227/2022 in CP(IB) No. 216/BB/2020, wherein, a very peculiar relief was sought for, by the Appellant that is, to direct the Resolution Professional to limit the period of the Transaction Audit to 2 years prior to commencement of CIRP as contemplated under Section 43 of the I & B Code, 2016, which is to be harmoniously construed to be read with Section 46, 59 & 50 of the I & B Code, 2016, in relation to the look-back period upto which the transaction audit is to be conducted.

On a simpliciter reading, of the provisions contained under Section 43 of the I & B Code, 2016, if that is taken into consideration, it does not speak, that the said provisions would at all be attracted to be applied in relation to, circumstances where the transaction audit is required to be gone into for the purposes of the proceedings under Section 66 of the I & B Code, 2016, which is independent in its nature and it will not be clouded by the aspect of transaction audit, as it has been prescribed for under Section 43 of the I & B Code, 2016, for the purposes of ‘look back period’ of two years, as prescribed therein.

There is another aspect, which we think apt to observe that, in any judicial proceedings where there is an endeavour made by the Court or a Tribunal created under law, with the objective to retrieve truth to arrive at a conclusion and to unearth any irregularity, or any illegal transaction which may have a bearing on the proceedings, there cannot be any enforced restriction on the transaction audit to be conducted, which aims to arrive at a logical conclusion, as to what implication will such transactions covered under Section 66 of I & B Code, 2016, would have. The lookback period is only a procedural provision that provides a guideline for the purposes of arriving at a truth to decide a matter. Since the statute under Section 43 of the I & B Code, 2016, does not create any specific bar, with regard to its applicability to the transactions which are alleged to be covered under Section 66 of the I & B Code, 2016, the same would not be attracted, and the observation made by the Ld. Tribunal, while dealing with the aforesaid issue, while deciding IA No. 227/2022 holding thereof, that there is no time limit prescribed under the statute for the purposes of the Transaction Audit for transaction under Section 66 of the I & B Code, 2016, and that the provisions of Section 43 of the I & B Code, 2016, does not specifically create any bar. Thus, the extension of the look-back period beyond 2 years is not fatal to the proceedings, but rather it will be facilitating the Tribunal to arrive at a logical conclusion with regards to the transactions, which may have had a bearing on the proceeding under Section 10 of the I & B Code, 2016.

It will not be out of context to observe that, if the language of Section 43 of the I & B Code, 2016, is taken into consideration, in the light of its corresponding provisions of Section 45, 46, 50 & 59 of the I & B Code, 2016 and they are read together, they would be treated as to be directory in nature since being procedural provision, not mandatory, and particularly owing to the logic which has been assigned by this Appellate Tribunal that, there cannot be any artificially created statutory restriction, where a provision could be restricted to be applied to arrive at a conclusion particularly, in the context of Section 66 of the I & B Code, 2016. Owing to the above, the ‘appeal’ lacks ‘merit,’ and the same is accordingly ‘dismissed.’

As far as, the exemption applications which have been filed in the respective appeals, for placing the certified copies of the impugned orders on record, are concerned, no orders are required to be passed on the same because, the certified copy of the respective orders have already been placed on record.

All pending ‘Interlocutory Applications’ would hereby stand closed.