Only creditors who have triggered the insolvency resolution process can be sued as a party: NCLAT Chennai

0

The National Company Law Appeals Tribunal (“NCLAT”), Chennai Bench including Judge M. Venugopal (Judicial Member) and Mr. Naresh Salecha (technical member), when examining an application filed in V. Venkata Sivakumar v IDBI Bank Ltd., held that the Insolvency and Bankruptcy Code, 2016 (“IBC”) has no provision to implicate creditors other than those who initiated the insolvency resolution process.

CONTEXTUAL FACTS

Jeypore Sugar Company Ltd. (“Company Debtor”) has been admitted into the Corporate Insolvency Resolution Process (“CIRP”) by the NCLT, Chennai Bench (“Arbitration Authority”) on an application made by IDBI Bank Ltd. and subsequently liquidation was ordered. MV Venkata Sivakumar has been appointed liquidator. While he was experiencing difficulties in carrying out his duties as liquidator, a request was made to the arbitration authority requesting police protection in the management of the debtor company’s assets. The contracting authority see an order dated 02.03.2022 had provided police protection to the liquidator of the debtor company, to take over custody of the school and petrol pump which operated on the properties leased to the Rajeswari Educational Society and the Indian Oil Corporation by the Debtor Company. Representatives of School and the Petrol Pump (“Claimants”) challenged the order of 02.03.2022 before the NCLAT Chennai Bench.

Subsequently, on 03.06.2022, the Judgment Authority, at the request of the promoters of the Debtor Company, had ordered the Liquidator not to deal with any of the assets of the Debtor Company until the disposal of the request concerned. Finally, on 01.07.2022, Mr. V Venkata Sivakumar was replaced by Mr. S Hari Karthik as liquidator. The former liquidator, Mr. V Venkata Sivakumar, had challenged the order of 01.07.2022 adopted by the contracting authority before the NCLAT Chennai Bench see Company Appeal Proceedings (AT)(CH)(INS) No. 269 of 2022 and plaintiffs have filed a motion for indictment in the same matter.

NCLAT DECISION

The Chamber observed that no provision of the IBC allows creditors, other than those who initiated the insolvency resolution process, to be impleaded as parties. A party can only be impleaded if they are a necessary party, which means that a person is absolutely necessary for the constitution of a lawsuit or an appeal in a given proceeding before a court of law, a court or authority.

“In fact, the question of whether a person has an enforceable legal right must be considered by a ‘Tribunal’ in terms of ‘impeachment of the parties’. ‘Substantive right’, but without a doubt, it is part of the “procedure” and the “Tribunal” must exercise its “discretion”, of course, subjectively, diligently. It cannot be denied that an “individual” will not be added as a “Party”, simply because he will be affected by the “Court” incidentally, when he passes an “Order” in a given “procedure”, before it. An “Appellant / Plaintiff” in a given legal proceeding is the “dominus litis “”.

The Chamber observed that a person cannot be compelled to include a person as a Party against whom he does not want to contest, unless it is a constraint of the law. A necessary party is a person without whom no order can be effectively made, or in the absence of whom an effective order can be made but whose presence is necessary to arrive at a final decision. Moreover, the mere interest of a Party in the fruits of a dispute cannot be a criterion for involving it as a Party.

It was further observed that Mr. V. Venkatasivakumar, the former liquidator, had filed a Company (AT) (CH) (INS) Appeal No. 269 of 2022 contesting his dismissal as liquidator of the debtor company and, by Accordingly, the petitioners are not necessary or proper parties to be named as respondents in the appeal concerned. Even without the presence of the petitioners, the Chamber may rule on the appeal on the merits and on the elements available in the file. The motion for indictment was dismissed.

Case title: V. Venkata Sivakumar v IDBI Bank Ltd., Comp. App (AT) (CH) (INS) No. 269 of 2022

Claimant Council: Sr Adv. Mr. Sriram Panchu and Sr Adv. P.Nagesh

Click here to read/download the order

Share.

About Author

Comments are closed.