Mr. Kamma Srinivasa Rao vs National Highways Authority Of India & Ors.

Per : Justice Sharad Kumar Sharma, Member (Judicial):

These two company appeals are interdependent upon one another. Hence, for the purposes of brevity, they are being decided together.

In Company Appeal (AT) (CH) (INS) No. 303/2024, the challenge as given by the Appellant is to the impugned order of 09.07.2024, as it has been passed in IA No. 1091/2024 in CP(IB) No. 77/7/HDB/2022.

The consequential effect of the impugned order has been, that the Respondent herein has been permitted to file a counter claim before the Arbitral Tribunal and further the Arbitral Tribunal was directed to proceed with the arbitration proceedings on such claim, which has been raised by way of a counter claim on merits. However, a rider has been attached to the order that the declaration of the award, as a consequence of the submission of the counter claim would be kept in abeyance.

The aforesaid judgment was rendered, on the basis of the Judgment, which has been rendered in the matters of Jharkhand Bijli Vitran Nigam Limited V. IVRCL, as reported in 2018 SCC Online 891. It is contended by the Ld. Counsel for the Appellant that, the said judgement has been wrongly relied upon for the reason being that, the said judgement is a judgment in per incuriam, since being a judgment that was rendered with consent, it will not be a ratio decidendi.

He submits that, in view of the Judgement rendered in P. Mohan Raj & others V. Shah Brothers Ispat Private Ltd., as reported in 2021 Vol VI, SCC 258, once the moratorium is imposed and it is in operation, a direction for submission of the counter claim in an Arbitration cannot be issued and that the aforesaid issue stands settled by the Judgment rendered in Alchemist Assets Reconstruction Company Ltd. V M/s. Remis Hotel Gaudavan Private Ltd. & Ors. as reported in 2018 Vol 16 SCC 94, wherein the Hon’ble Apex Court has laid down the principle that, any institution of suit / continuation of suit subsequent to the imposition of moratorium under Section 14 of the I&B Code, 2016, that would be not permissible and hence, the basic ratio laid down by the aforesaid Judgment has not been considered in its true spirit while passing the impugned order, permitting the filing of the counter claim by the Respondent / NHAI before the Arbitral Tribunal.

Further, the Appellant has contended that passing of the impugned order of 09.07.2024 by Ld. NCLT is without an application of mind, as the Ld. NCLT has passed the said order relying on the Judgment of Hon’ble Delhi High Court in the matters of SSMP Industries Ltd. V. Permanent Food Processors Private Ltd. 2019 SCC Online Delhi 9339, the Judgment of Hon’ble Delhi High Court in the matters of Power Grid Corporation of India V. Jyothi Structures Ltd. (2018) 246 DLT 485, and the Judgment of NCLAT in the matters of Jharkhand Bijli Vitran Nigam Limited, which have, since been overruled by the Hon’ble Apex Court in a Judgment that, was rendered in the matters of P. Mohan Raj & Ors. V. Shah Brothers Ispat Pvt. Ltd., as referred to hereinabove and reported in (2021) Volume VI SCC 258.

He has further contended that exclusive reliance on the Judgment of Jharkhand Bijli Vitran Nigam Ltd. (supra) for the purposes of passing of a direction for entertaining the counter claim in a pending arbitration proceedings, should not be allowed because as soon as Section 14(1)(a) has been imposed, the Ld. Adjudicating Authority could not have issued any direction to the Arbitral Tribunal, to entertain the counter claim and to decide the same, in the light of the provisions contained under Order VIII Rule 6A of the C.P.C.

However, as far as the impugned order is concerned, so far as it relates to the present Appellant, it is to be tested as to whether at all, the Appellant could be an appropriate party to the proceedings of IA No. 1091 / 2024, as preferred in CP (IB) No. 77 / 7 / HDB /2022 by the Respondent herein.

The Respondent NHAI had preferred the IA No. 1091 / 2024 by filing the same before the Ld. Adjudicating Authority on 21.04.2024 praying for, to allow the application and permit the Arbitral Tribunal to entertain and adjudicate upon his counter claim of the Applicant i.e. National Highway Authority of India, as it was filed before the Arbitral Tribunal to decide the same on merits. It is on this application the impugned order of 09.07.2024 has been passed, which is the subject matter of challenge in Company Appeal (AT) (CH) (INS) No. 303 / 2024.

At this stage, we are not required to make a detailed venture to the merits of the Appeal, because, what authority or a right does the Appellant have to put a challenge to the order of 09.07.2024 as it has been passed in IA No. 1091 / 2024, would be dependent upon the order that, has been passed on an Intervention Application i.e. IA No. 21 / 2024, as it stood preferred by the Applicant praying for, to be permitted to be impleaded in IA No. 1091 / 2024, as preferred in CP (IB) No. 77 / 7 / HDB / 2022.

In the proceedings of the aforesaid Company Petition, the Applicant had filed an Intervention Application on 15.06.2024, praying there of that, he may be permitted to be impleaded, as an Applicant and a necessary party to the IA No. 1091 / 2024 and should be given a reasonable opportunity to contest the proceedings. The relief as modulated by the Appellant in the said Application is extracted hereunder:

The said Application was dismissed by Ld. Adjudicating Authority by an order dated 09.07.2024 which is being challenged before this Tribunal in Company Appeal (AT) (CH) (INS) No. 304 /2024.

While opposing the proceedings of the Company Appeal, the Ld. Counsel for the Respondent draws the attention of this Tribunal to the provisions contained under Section 17(1)(b) of I & B Code, 2016, which prescribes for that the powers of the Board of Directors or the partners of the Corporate Debtor shall stand suspended and would be exercised by the Interim Resolution Professional (IRP).

He further submits that, based upon this proposition of law and the intention of the statute, the Appellant in his individual capacity will not have any vested right to maintain the Application for intervention particularly when the Corporate Debtor has already been placed under CIRP process and which is now subject matter of challenge in an Appeal preferred by the Appellant before this Tribunal.

Apart from it, the Ld. Counsel for the Respondent has made reference to sub-section 2 of Section 17 of I & B Code, 2016, and as a consequence thereto he submits, that since all the rights of the management of the Corporate Debtor stands vested with the IRP after commencement of CIRP, his right would not be affected at all in any manner whatsoever, in any proceedings in relation to the Corporate Debtor and hence, he may not be the necessary party for the purposes of adjudicating upon IA No. 1091 / 2024 as preferred in CP (IB) / 77 / 7 / HDB / 2022.

The Appellant has contended that he had filed a Company Appeal being Company Appeal (AT) (CH) (INS) No. 310 / 2023, challenging the order of admission of the Corporate Debtor into the CIRP process, under Section 7 of the I & B Code, 2016, and that this Appellate Tribunal has granted an interim order, that is operating till date and since he is the Appellant on that premise in the Company Appeal (AT) (CH) (INS) No. 310 / 2023, he becomes a necessary party to be impleaded in IA No. 1091 / 2024 and he has to be given a reasonable opportunity to be heard and to contest the said application, on the ground that, his rights would be adversely affected, if any decision is taken on IA No. 1091 / 2024, without hearing the Appellant.

Apart from it, on merits the Appellant has submitted that, if any order is passed on the IA No. 1091 / 2024, that would be in utter derogation to the provisions contained under Section 14 of the I & B Code, 2016, since during the course of moratorium, a counter claim and the reliefs sought therein would not be maintainable, and hence no orders could have been passed as that of the order dated 09.07.2024, which was passed in IA No. 1091 / 2024.

On an overall scrutiny of the Application i.e. IA No. 21 / 2024, which is the subject matter of consideration in Company Appeal (AT) (CH) (INS) No. 304 / 2024, it is seen that none of the grounds made out by the Appellant, to satisfy that he would be the necessary party to be impleaded stand validated and none of the covenants contained under Order I Rule 10 of the C.P.C. or the governing principles, under which a party to the proceedings can be impleaded, stood satisfied to be established based on the pleadings raised in IA No. 21 / 2024.

May it be so, because of the fact that, the Appellant has preferred an Appeal, i.e. Company Appeal (AT) (CH) (INS) No. 310 of 2023 as against the impugned order of admission of Section 7 Application, as against the Corporate Debtor, merely because of the fact there operates an interim order dated 10.10.2023 or that the interim order has been continued from time to time, that in itself will not justify or satisfy the necessity of the Appellant to be impleaded as a party to the proceedings in IA No. 1091 / 2024, which has already been allowed by the order of 09.07.2024.

In fact, none of the grounds that has been taken by the Appellant in the IA No. 21 / 2024, justifies the necessity as to why the Appellant becomes a necessary party to be impleaded in IA No. 1091 / 2024, as the Appellant has utterly failed to establish that he could at all have been an aggrieved party or he could have at all being a necessary party, who was required to be heard, before IA No. 1091 / 2024, was being considered and decided on merits.

The Ld. Counsel for the Appellant had relied upon the Judgment in Company Appeal (AT) (CH) (INS) No. 240 / 2024 in the matters of Mr. Kamma Srinivasa Rao, Trichy-Thanjavur Expressways Ltd. v. Raghu Babu Gunturu, RP, Trichy-Thanjavur Expressways Ltd. & Anr.^, which was preferred by the Appellant, arising from an order of 29.05.2024, allowing the Application bearing IA (IBC) No. 982 / 2024 that was filed by the Respondent therein, to take on record the list of Creditors dated 16.02.2024 and 05.03.2024.

It is under the aforesaid backdrop that, since the list of Creditors, which was directed to be taken on record, the Appellate Tribunal, taking into consideration exclusively the fact that, the list of Creditors has been taken on record, without providing an effective opportunity to the Appellant, had interfered in the Appeal holding that the order of taking the list of Creditors on record, happens to be in violation of the principles of natural justice, as no effective hearing was provided and accordingly quashed the order and remanded the same to the Ld. NCLT to be considered afresh after following the principles of natural justice. The facts narrated therein is not akin to the controversy at hand, which is subject matter of consideration in the instant Company Appeal (AT) (CH) (INS) No. 304 / 2024, because, it did not pertain to the aspect of taking on record the list of Creditors, nor it relates to the order having been passed by the Ld. Tribunal, without providing an effective opportunity of hearing in the context of the provisions contained under Rule 37 of the NCLT rules, which contemplated for the mandatory issuance of Show Cause Notice, to the concerned parties, before any order was to be passed for taking the list of Creditors on record.

Hence, this Judgment is of no avail for the Appellant, so far it relates to supporting his contention qua the challenge given to the impugned order of 09.07.2024, resulting into rejection of the IA No. 21 / 2024, as it was preferred by the Appellant in IA No. 1091 / 2024, seeking himself to be impleaded, to contest the proceedings of IA No. 1091 / 2024 on its merit.

In the instant Company Appeal, where the issue of IA No. 21 / 2024 was being considered and decided by the Appellate Tribunal, it was not for the akin reason as that, which has been referred to in Company Appeal (AT) (CH) (INS) No. 240 / 2024, which related to the implications flowing from Rule 37 of the NCLT Rules, relating to taking the list of Creditors on record. Rather to the contrary, in this case, when the Ld. Tribunal was considering the Intervention Application i.e. IA No. 21 / 2024, in which, by invoking the provisions contained under Rule 11 of the NCLT Rules, 2016, the Appellant sought himself to be impleaded in IA No. 1091 / 2024.

As far as the Appellant’s status is concerned, he could neither plead nor establish as to how he would be affected by the order that, was to be passed on IA No. 1091 / 2024, while the order was being passed on 09.07.2024 in IA No. 21 / 2024, as it was preferred in CP (IB) / 77 / 7 / HDB / 2022, except for that he has filed Company Appeal against the admission of Section 7 Application of the Corporate Debtor of which he is the Suspended Director.

The Ld. Tribunal while considering the necessity of the Applicant, to be considered as a necessary party to the proceedings, rightly came to the conclusion, that a party to the proceedings can be only introduced, in the light of the principles laid down under Order I Rule 10 of the C.P.C., it is determined that the person seeking himself to be impleaded or intervene, is able to establish that his presence is indispensable and the lis cannot be effectively decided without hearing the Appellant, on its own merits. In fact, this was not a case which was ever attempted to be established by the Appellant while pressing upon IA No. 21 / 2024.

It is needless to say, that when any Court or Tribunal is considering the Application for Intervention, it will have to test that, there must be an enforceable right to some relief that has been sought as against the party in respect of the controversy under consideration in the proceedings or that no effective or final adjudication can be made in the absence of such a person who is seeking to be impleaded as a party. The ingredients were not satisfied by the Appellant while pressing upon IA No. 21 / 2024, seeking his impleadment. In fact, the ratio and basic governing principles of necessity for impleadment, as aforesaid has been not been satisfied by the Appellant, which could have permitted him to be impleaded as a party to the proceedings.

The Ld. Tribunal, has further taken the view that, in the light of the relief, which was sought in IA No. 1091 / 2024, since, the Respondent herein had not sought any relief, as against the present Appellant and since, it was confined to seeking a direction to the Arbitral Tribunal, before which the proceedings of arbitration were pending, to consider the counter claim, in the Arbitration proceedings itself, in which the Applicant was not a party to the proceedings, mere apprehension or a likelihood of an adverse decision being rendered in Arbitration proceedings by the Arbitral Tribunal will not render the Appellant to be a necessary party to the proceedings because, firstly, it will not have any effect on the rights of the Appellant, since Appellant not being party to Arbitration proceedings and secondly, presumption that, Appellant is likely to be affected has not been justified by any valid ground put forth in his application i.e. IA No. 21 / 2024, and therefore, there is no necessity for the Applicant to be impleaded as a party to the proceedings of IA No. 1091 / 2024.

The Ld. Tribunal, while considering the rival contentions had observed that, merely because of the fact, that the Appellant has preferred an Appeal before this Appellate Tribunal, as against the admission of Section 7 Application, wherein the Corporate Debtor was being directed to face the proceedings of the CIRP under Section 7 of I & B Code, 2016, the Application seeking for Impleadment at the behest of the Applicant would not be maintainable.

The Appellant in support of his contention to justify his impleadment before the Ld. Adjudicating Authority, has relied upon the Judgment as reported in 1992 Vol II SCC 524 Ramesh Hirachand Kundanmal V. Municipal Corporation of Greater, Bombay.

In the said Judgment, the Hon’ble Apex Court, has observed that a party would be a necessary party to the proceedings, who is determined to be a party whose rights are likely to be affected or in whose absence no effective order could not have been passed. But, for all these factors to be established, what becomes relevant is, that the Appellant should have made out a ground in the Application preferred by him, seeking an impleadment, which was apparently not made out from the pleading raised in IA No. 21 / 2024.

It has not been the case of the Appellant that no effective adjudication can be made to the IA No. 1091 / 2024 in the absence of he being impleaded as a party and particularly when he is not a party to the proceedings of the Arbitration proceedings.

For the purposes of an effective adjudication of IA No. 1091 / 2024, there was no necessity for the Appellant / Applicant, to be impleaded, wherein only a direction was being issued to permit filing of a counter claim, in an Arbitration proceedings, to which Appellant is not party. What legal bearing will the order passed in IA No. 1091 / 2024, on 09.07.2024, granting permission for filing of a counter claim in a pending Arbitration proceedings, during the operation of moratorium imposed under Section 14 of I & B Code, 2016, is a question which cannot be permitted to be agitated at the behest of the Appellant, when he himself by the documents placed on record has failed to establish that the lis could not have been effectively decided in his absence.

Once, the Ld. Tribunal has determined;

Thus the rejection of the Intervention Application i.e. IA No. 21 / 2024, the Ld. Adjudicating Authority does not suffer from any apparent error, which could call for any interference by this Appellate Tribunal. Accordingly, the Company Appeal (AT) (CH) (INS) No. 304 / 2024, would stand dismissed. All pending Interlocutory Applications would stand closed.

Owing to the order passed by us in the Company Appeal (AT) (CH)

(INS) No. 304 / 2024, where the impleadment of the Appellant has been denied, the consequential effect of the same would be, that when the right of the Appellant to put a challenge to the proceedings of IA No. 1091 / 2024 and orders passed thereon, it has been closed, he would not have any right as such, to put a challenge to the order of 09.07.2024, as passed by the Ld. Adjudicating Authority in IA No. 1091 / 2024, granting permission to adjudicate upon the counter claim of the Applicant to IA No. 1091 / 2024, in Arbitration proceedings.

Hence, the Company Appeal (AT) (CH) (INS) No. 303 / 2024, too along with all the pending Interlocutory Applications would stand dismissed, in the light of the Judgment rendered by us in Company Appeal (AT) (CH) (INS) No. 304 / 2024, this Company Appeal (AT) (CH) (INS) No. 303 / 2024, too would consequentially stand dismissed.