Case Note & Summary
The case involves an execution application filed by Mars Art Studio (the judgment creditor) against Shirdi Industries Limited (the judgment debtor) to recover a sum of Rs. 8,73,159.70 based on an award dated 3rd March 2018 passed by the Micro and Small Enterprises Facilitation Council (MSEFC). The judgment debtor had earlier undergone a Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016, and the NCLT, Mumbai Bench, by order dated 12th December 2017, approved a resolution plan that entitled the judgment creditor to only 15% of its claim amount. The judgment debtor informed the judgment creditor about the plan and expressed readiness to pay the 15% amount, but the judgment creditor proceeded with execution for the full award amount. The judgment debtor filed an Interim Application to set aside the warrant of attachment on its current account. The court held that the approved resolution plan is binding on all stakeholders under Section 31 of the IBC, and the MSEFC award stood subsumed by the plan. The execution for the full amount was not maintainable. The court set aside the warrant of attachment and directed the judgment debtor to pay the 15% amount as per the resolution plan within four weeks, failing which the warrant could be revived.
Headnote
A) Insolvency and Bankruptcy Code - Resolution Plan - Binding Effect - Section 31, IBC - The approved resolution plan is binding on all stakeholders including operational creditors, and the claim under the MSEFC award stands subsumed by the plan. The court set aside the warrant of attachment as the execution sought to recover the full award amount contrary to the plan. (Paras 1-13)
B) Micro, Small and Medium Enterprises Development Act - MSEFC Award - Execution - Section 18, MSMED Act - The award passed by the MSEFC after the approval of the resolution plan cannot be executed for the full amount when the plan provides for a reduced payment. The court directed the judgment debtor to pay the 15% amount as per the plan. (Paras 2-13)
Issue of Consideration
Whether the warrant of attachment issued in execution of an MSEFC award can be sustained after the judgment debtor's resolution plan under the Insolvency and Bankruptcy Code, 2016 has been approved by the NCLT, which provided for a reduced payment of 15% of the claim.
Final Decision
The court allowed the Interim Application and set aside the warrant of attachment. The judgment debtor was directed to pay the 15% amount as per the resolution plan within four weeks, failing which the warrant could be revived.
Law Points
- Insolvency and Bankruptcy Code
- 2016
- Section 31
- Section 14
- Section 238
- Micro
- Small and Medium Enterprises Development Act
- 2006
- Section 18
- Resolution Plan
- Binding Effect
- Attachment
- Execution
- Warrant of Attachment
Case Details
2024 LawText (BOM) (03) 75
Interim Application No. 2172 of 2019 in Execution Application No. 787 of 2019
Mr. Ranjan Dwivedi for Respondent/Judgment Debtor in EXA and for Applicant in IA, Mr. Lalit V. Jain for Claimant/Judgment Creditor
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Nature of Litigation
Interim Application seeking setting aside of warrant of attachment in execution proceedings for recovery of an MSEFC award.
Remedy Sought
Setting aside the warrant of attachment on the judgment debtor's current account with Kotak Mahindra Bank to the extent of Rs. 8,73,159.70.
Filing Reason
The judgment debtor contended that the claim of the judgment creditor had been settled under an NCLT-approved resolution plan under the IBC, which provided for payment of only 15% of the claim, and the execution for the full award amount was not maintainable.
Previous Decisions
The NCLT, Mumbai Bench, by order dated 12th December 2017, approved a resolution plan entitling the judgment creditor to 15% of its claim. The MSEFC passed an award on 3rd March 2018 directing payment of the full claim amount. The execution application was filed on 18th December 2019.
Issues
Whether the warrant of attachment issued in execution of an MSEFC award can be sustained after the judgment debtor's resolution plan under the IBC has been approved by the NCLT, which provided for a reduced payment of 15% of the claim.
Submissions/Arguments
The judgment debtor argued that the approved resolution plan is binding on all stakeholders under Section 31 of the IBC, and the MSEFC award stood subsumed by the plan. The execution for the full amount was not maintainable.
The judgment creditor argued that the MSEFC award was passed after the resolution plan and should be executed for the full amount.
Ratio Decidendi
An approved resolution plan under Section 31 of the IBC is binding on all stakeholders, including operational creditors, and any award or claim that is inconsistent with the plan cannot be executed for the full amount. The MSEFC award stood subsumed by the plan, and the execution for the full award amount was not maintainable.
Judgment Excerpts
This Interim Application seeks setting aside the warrant of attachment in respect of the current account no. 1112016583 with Kotak Mahindra Bank, Shivaji Park Branch, situate at Saraswat Bhawan, Prabhadevi, Mumbai-400 028, standing in the name of the Applicant to the extent of Rs. 8,73,159.70.
The resolution plan submitted by the Insolvency Resolution Professional entitling the Respondent to 15% of the claim amount was approved.
The court set aside the warrant of attachment and directed the judgment debtor to pay the 15% amount as per the resolution plan within four weeks.
Procedural History
The judgment creditor filed a petition before the MSEFC on 4th March 2016 for recovery of Rs. 2,87,500/-. The judgment debtor underwent CIRP, and the NCLT approved a resolution plan on 12th December 2017 entitling the judgment creditor to 15% of the claim. The MSEFC passed an award on 3rd March 2018 for the full amount. The judgment creditor filed Execution Application No. 787 of 2019 on 18th December 2019. The judgment debtor filed Interim Application No. 2172 of 2019 on the same day to set aside the warrant of attachment.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: Section 31, Section 14, Section 238
- Micro, Small and Medium Enterprises Development Act, 2006: Section 18
