V. Ganesan vs Prudent ARC Limtied

Per: Justice Rakesh Kumar Jain:

This appeal is directed against the order dated 20.09.2023, passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench – 1, Chennai) by which IA (IBC)/705/CHE/2023 filed in IBA/883/2019 by Prudent ARC Limited under Regulation 31A(6) of the IBBI (Liquidation Process) Regulations, 2016 (in short ‘Regulations’) read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’), seeking prayers that ‘(a) direct the Liquidator herein to convene a meeting of the stakeholders consultation committee in the Corporate Debtor in furtherance to the request emails dated 19.04.2023 and 25.04.2023 to consider the agenda of replacement of the liquidator; and (b) pass such other orders as this Hon’ble Tribunal may deem fit and thus render justice’ have been allowed and the following order has been passed:-

Although, the order dated 20.09.2023 is amenable to a statutory appeal provided under Section 61 of the Code yet the Appellant, erstwhile liquidator of M/s Kamachi Industries Limited (Corporate Debtor), filed a writ petition no. 28516 of 2023 before the Hon’ble Madras High Court for the issuance of writ of certiorari for quashing the order dated 20.09.2023 passed by the Adjudicating Authority in IA (IBC) No. 705 of 2023 and in the meantime prayed that operation of the said order be stayed so far it relates to the replacement of the Appellant as a liquidator of the CD.

In the said writ petition, the initial order was passed on 29.09.2023 which read as under:-

Since, there was some error of omission in the aforesaid order dated 29.09.2023, therefore, further order was passed in which status quo was granted which read as under:-

Thereafter, another order was passed on 16.10.2023 which read as under:-

However, the writ petition was ultimately disposed of on 01.11.2023 with the following order:-

The Hon’ble Madras High Court disposed of the aforesaid writ petition on the ground that the Appellant has an alternative efficacious remedy of appeal to which the Appellant was relegated to and the interim protection was granted for 7 days for filing the statutory appeal.

However, instead of filing the statutory appeal, the Appellant challenged the order dated 01.11.2023 of the Hon’ble Madras High Court by way of a Special Leave Petition (Civil) Diary No. 46342 of 2023, under Article 136 of the Constitution of India, in which the Appellant made the prayer to grant special leave to appeal against the final order dated 01.11.2023 passed by the Hon’ble Madras High Court in writ petition and also prayed for ad-interim ex-parte stay on the order dated 20.09.2023 passed by the Adjudicating Authority. The SLP was however dismissed and pending applications, if any, were disposed of by the Hon’ble Supreme Court vide its order dated 09.11.2023 which read as under:-

Thereafter, the Appellant filed the present appeal i.e. CA (AT) (CH) (Ins) No. 396 of 2023 under Section 61 of the Code to challenge the order dated 20.09.2023.

The memo of appeal is divided in separate parts and under the heading ‘limitation’, the Appellant has urged that the period spent by the Appellant both before the Hon’ble Madras High Court and the Hon’ble Supreme Court may be excluded in terms of Section 14 of the Limitation Act, 1963 (in short ‘Act’) and the appeal be decided on merits. At the time of preliminary hearing of the appeal an order was passed on 17.11.2023 which read as under:-

After hearing both the parties on the issue of limitation as to whether the Appellant is entitled to the benefit of Section 14 of the Act or not. Arguments were heard and order was reserved on 20.11.2023, which read as under:-

Counsel for the Appellant has submitted that the Appellant is entitled to the benefit of Section 14 of the Act because the Appellant had been pursuing its remedy with due diligence and bonafidly, firstly, before the Hon’ble Madras High Court where the impugned order was challenged in a writ of certiorari, inter alia, on the ground that the order was passed by the Adjudicating Authority without there being any prayer made by the Appellant for replacement of the Appellant as a liquidator of the CD and secondly without notice to the Appellant which is a violation of principle of natural justice. It is further submitted that filing of SLP before the Hon’ble Supreme Court against the order dated 01.11.2023 passed by the Hon’ble Madras High Court also fall within the ambit of due diligence and bonafide prosecution of the remedy. He has further submitted that in so far as the condonation of delay under Section 5 of the Act is concerned, the Court has a discretion to condone the delay by forming an opinion on the sufficient cause for not filing the appeal within the time prescribed whereas under Section 14 of the Act the exclusion of time is mandatory if the requisite conditions are satisfied. It is further submitted that Section 14 of the Act is applicable in the cases of IBC as well and in support of his submissions, he has relied upon two decisions of the Hon’ble Supreme Court rendered in the case of Consolidated Engineering Enterprises Vs. Principal Secretary, Irrigation Department and Ors. (2008) 7 SCC 169 and Kalpraj Dharamshi and Ors. Vs. Kotak Investment Advisors Ltd. & Ors. Manu/SC/0174/2021.

On the other hand, Counsel for the Respondent has submitted that the Appellant is not entitled to the benefit of Section 14 of the Act because he had been indulging in forum shopping despite knowing fully well, being the liquidator, that there is a statutory appeal provided under Section 61 of the Code for the redressal of his grievance, if any, arising out of the impugned order passed by the Adjudicating Authority. It is further submitted that Section 14 of the Act cannot be applied without satisfying the Court that the proceedings initiated by the Appellant was with due diligence and bonafidly. It is further submitted that Section 61 of the Code confers a statutory right upon an aggrieved person to challenge the order of the Adjudicating Authority for which a period of 30 days for filing of such an appeal is prescribed and in case the period of 30 days expires, it opens a window of another 15 days during which the appeal may be filed but by assigning sufficient cause to the satisfaction of the Appellate Authority for the delay. The sufficient cause should be an explanation and not an excuse. It is submitted that the period of 15 days cannot be further extended in any manner by any court. It is further argued that if the period spent by the Appellant is not excluded then the appeal is clearly barred by limitation because it has been filed after 53 days whereas the total period provided is 30 + 15 i.e. 45 days. It is also submitted that the Appellant has not filed a formal application for seeking condonation of delay and himself condoned the delay while referring to the previous litigation in the memo of appeal under the heading of ‘limitation’ despite the fact that the Appellant was working as a liquidator who is presumed to have complete knowledge about not only the provisions of IBC but also about the relevant Regulations and Rules. It is further submitted that cause shown by the Appellant is that the Adjudicating Authority has granted a relief which has not been asked for by the Respondent in its application is patently incorrect because the Applicant/Respondent made two prayers in the application out of which prayer no. (b) was an omnibus prayer wherein the Appellant has requested the Adjudicating Authority to pass such other orders as this Hon’ble Tribunal may deem fit and thus render justice. It is further submitted that even otherwise the Liquidator has no personal right to continue as such and in this regard, he has relied upon the orders passed by this Appellate Tribunal in the case of Subrata Maity Vs. Mr. Amit C. Poddar & Ors., CA (AT (Ins) No. 1234 of 2022 decided on 13.10.2022 and C.V. Venkata Sivakumar Vs. IDBI Bank Limited CA (AT) (CH) (Ins.) No. 269 of 2022 in which it has been held that the Liquidator does not have any personal right to continue with the liquidation process and it is within the inherent power of the NCLT to replace the liquidator. He has further referred to the decision of the Hon’ble Supreme Court in the case of Ketan V. Parekh Vs. Special Director, Directorate of Enforcement and Ors., Civil Appeal No. 10301 of 2011 decided on 29.11.2011 to contend that the liquidator knowing fully well about statutory provisions much less right to file the appeal is not entitled to the benefit of Section 14 of the Act if he had filed a writ petition before the Hon’ble Madras High Court and when the Hon’ble Madras High Court granted stay and relegated him to its remedy of filing the statutory appeal yet he filed the SLP before the Hon’ble Supreme Court even against the order of the Hon’ble Madras High Court which is not an action taken with due diligence and bonafidly.

We have heard Counsel for the parties and perused the record with their able assistance.

Since, the issue involved in this appeal is regarding exclusion of the time spent by the Appellant in the earlier litigation by invoking Section 14 of the Act is concerned, therefore, it would be relevant to refer to Section 14 of the Act which is reproduced as under:-

Section 14(1) of the Act deals with the suit, Section 14(2) deals with the application and Section 14(3) is in respect of filing a fresh suit instituted upon permission granted by the Court. In Section 14(1)&(2) the terms which are to be noticed and highlighted are ‘prosecuting with due diligence’ and ‘prosecuting in good faith’. In the case of Consolidated Engineering Enterprises (Supra), the Hon’ble Supreme Court has analysed Section 14 of the Act which read as under:-

It has also been held that due diligence and caution are essential prerequisites for attracting Section 14 but due diligence cannot be measured by any absolute standards rather it is measured with prudence or activity expected from and ordinarily exercised by a reasonable and prudent person under the particular circumstances and in respect of good faith it has been observed that nothing shall be deemed to be done in good faith which is not done with due care and attention. It is further held that Section 14 will not help a party who is guilty of negligence, lapse or inaction. In so far as the case of Kalparaj Dharamshi & Ors. (Supra) is concerned, the Hon’ble Supreme Court has held that the Appellant therein approached the High Court of Bombay with a grievance that NCLT had adopted a procedure which was against the principle of natural justice and specifically mentioned in the writ petition that though alternate remedy was available, it approached the High Court since the issue was regarding the functioning of the NCLT. In that case, it was found that proceedings before the High court was hotly contested and by an elaborate judgment, the High Court dismissed the writ petition and relegated the petitioner therein to the alternate remedy available in law. In this background, it was held that the Appellant therein was bonafidly persecuting the remedy before the High Court in good faith and due diligence. There is no quarrel with the aforesaid two decisions of the Hon’ble Supreme Court which were decided on its peculiar facts but in the present case the Appellant, being a liquidator, knew about the statutory appeal provided under Section 61 of the Code, which even could have been filed with exemption from filing the certified copy but the Appellant chose to file a writ petition before the Hon’ble Madras High Court in which though, it had been mentioned that there is an alternative remedy of appeal and was granted stay initially but later on it was found that there is a statutory appeal provided and it would be appropriate for the petitioner to avail the statutory remedy. While relegating the Appellant to avail its remedy it was also observed that it is not inclined to entertain the writ petition under Article 226 of the Constitution of India and disposed it with liberty to the petitioner to avail the alternative remedy provided under the statute keeping all the contentions open and the interim protection granted was allowed to be continued for a period of seven days for the purpose of filing the appeal. This order was passed on 01.11.2023. If the decision in the case of Kalpraj Dharamshi & Ors. (Supra) is to be applied, the Appellant should have filed the appeal thereafter before the Appellate Tribunal but despite the fact that the Appellant is a liquidator and as per the decision of the Hon’ble Supreme Court in the case of Ketan V. Parekh (Supra) is not entitled to the protection of Section 14 of the Act not only because he is well conversant with the various statutory provisions but also engaged lawyers, had the sagacity to approach the Hon’ble Supreme Court, under Article 136 of the Constitution of India, even against the order of the Hon’ble Madras High Court by which the Appellant was not only allowed to file the statutory appeal but was also granted a stay of 7 days for that purpose. It would thus be of anybodys guess as to whether it’s an act of due diligence and bonafide prosecution of the remedy by the petitioner or the petitioner was shying away from filing the appeal, for the reasons best known to him or is a stiff neck or stubborn person who otherwise has no personal right to continue as a liquidator in view of two decisions of this Appellate Tribunal rendered in the case of Subrata Maity (Supra) and CA V. Venkata Sivakumar (Supra) in which it has been held that the liquidator does not have any personal right to continue in a liquidation process and the NCLT has inherent powers to replace the liquidator.

It cannot be said that the order passed by the Adjudicating Authority was without jurisdiction. The Adjudicating Authority had the jurisdiction to pass the order on an application filed under Section 60(5) of the Code which provides that “(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of—(a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.”

In the present case, the Applicant/Respondent invoked not only Regulation 31A(6) of the Regulations but also Section 60(5) of the Code and made two prayers out of which prayer (b) is for passing an order as the Tribunal may deem fit. The Tribunal has recorded the reasons while disposing of the application which cannot be said to be an order having been passed without jurisdiction and the contention of the Appellant in this regard is totally incorrect. The order of the Adjudicating Authority may be, in the opinion of the Appellant, illegal but for that matter the Appellant has to prefer an appeal and not the writ petition and then a special leave petition before the Hon’ble Supreme Court even against the order of the Hon’ble High court by which the Appellant was relegated to avail his remedy of appeal and also granted stay till the appeal is filed. If this procedure is allowed to be followed then there would be no end to the filing of the writ petitions against the order of the Adjudicating Authority of the NCLT before the Hon’ble High Courts and thereafter the orders of the Hon’ble High Courts would be challenged before the Hon’ble Supreme Court.

The Hon’ble Supreme Court while dismissing the SLP did not grant the Appellant remedy to file appeal rather the SLP was simply dismissed with the observations “we are not inclined to entertain the SLP under Article 136. The SLP is accordingly dismissed”.

Thus, in view of the aforesaid discussion and looking from any angle, we do not find merit in the submission of the Appellant for excluding the period under Section 14 of the Act and since the appeal has been filed after the period of 53 days from the date of passing of the impugned order, therefore, we would refer to the Hon’ble Supreme Court in the case of National Spot Exchange Limited Vs. Anil Kohli, Civil Appeal No. 6187 of 2019, in which it has been held that the Tribunal can condone the delay only of a period of 15 days beyond the prescribed period of 30 days i.e. 30+15 and not a day thereafter which cannot even be condoned by resorting to Article 142 of the Constitution of India, therefore, the present appeal is found to be barred by limitation, having been filed on 53^rd day and thus the appeal is hereby dismissed. No costs.