Civil Courts Do Not Have Jurisdiction to Pass Orders in Matters Pertaining to IBC, Delhi HC Observes While Stressing on the Supremacy of the Law

Civil Courts Do Not Have Jurisdiction to Pass Orders in Matters Pertaining to IBC, Delhi HC Observes While Stressing on the Supremacy of the Law

Stressing on the supremacy and relevancy of the Insolvency and Bankruptcy Code 2016 (IBC), the Delhi High Court single judge Bench of Justice Rajiv Sahai Endlaw in a significant judgment rendered on February 22, ruled that the power to pass any order in cases pertaining to the IBC falls in the exclusive domain of National Company Law Tribunal (NCLT) or similar adjudicating authorities and not with the civil courts which deals with cases pertaining to civil laws like the Law of Contract.

The bench while delivering the verdict was of the view that if civil courts were granted jurisdiction to pass any order or interfere in any matter falling under the IBC, the entire corporate insolvency proceeding pending before the NCLT would diminish to nothing and would lead to wastage of time, which would, in turn, make resolution of corporate debtors unfeasible.

The court further opined that such an approach will encourage “non-serious applicants” to submit resolution plans for consideration before the Resolution Professional (RP) and Committee of Creditors (CoC), and then not abide with it once it is approved, leaving the liquidation of the company as the only feasible alternative left owing to the time lapsed.

“Now if this court were to have jurisdiction and to hold either that the terms of the Process Memorandum or of the Bid Bond Guarantee (BBG) were not binding on the plaintiff and/or that the plaintiff is not in default thereof, the same would clearly amount to rendering findings inconsistent with the NCLT” Justice Endlaw said.

The court's observations came while hearing a plea moved by Liberty House Group against State Bank of India (SBI), Barclays Bank and the Resolution Professional (RP), urging the court to restrain the respondents from invoking the bank guarantees worth Rs 100 crore, it had submitted as a pre-condition for bidding for its two companies Castex Technologies and Amtek Auto under the corporate  insolvency  resolution process.

Pertinently, SBI had invoked the bank guarantee submitted by Liberty House only after the company failed to proceed with the resolution process despite having been declared the successful bidder in both the cases.

To this, the High Court remarked that the bank guarantees invoked by SBI were a measure to teach a lesson and induce fear in 'such unscrupulous elements” which intentionally delay the corporate insolvency process without any fear of consequences and was, therefore, well within the parameters of IBC.

Parting with the case, the court imposed a fine of Rs 50 lakh on the company and directed it to pay the sum to SBI within four weeks from now.

Earlier, the Chandigarh bench of NCLT in its December 5 order, had expressed resentment against the Liberty House group for failing to comply with the approved resolution plans for its two companies and castigated the group for “putting the whole CIR Process and the machinery to quandary”.

Notably, the Supreme Court two-judge Bench of Justice RF Nariman and Justice Navin Sinha in a significant judgment on January 25, quashed the petitions challenging the constitutional validity of the IBC on the ground of being discriminatory against operational creditors and upheld the validity of the Code ‘in its entirety'.

Committee of Creditors (CoC)
Delhi High Court
Insolvency and Bankruptcy Code (IBC)
National Company Law Tribunal (NCLT)
Resolution Professional (RP)

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