High Court of Bombay Examines Whether Civil Suit for Recovery Survives Approval of Resolution Plan Under Insolvency and Bankruptcy Code, 2016. The petition raises the question of the overriding effect of the IBC on pending civil proceedings.

Writ petition under Article 226 of the Constitution of India challenging the order of the Trial Court rejecting the petitioner's application for dismissal of a summary suit for recovery of money, in view of the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.

The petitioner sought setting aside of the Trial Court's order dated 25/10/2018 and dismissal of the regular civil suit (RCS No.153 of 2011) filed by respondent No.1, claiming that the suit had become not maintainable after the approval of the resolution plan.

The petitioner contended that with the approval of the resolution plan under the IBC, all liabilities of the erstwhile company stood extinguished, and as per the plan no amount was payable to operational creditors like respondent No.1, thus the civil suit could not continue and was liable to be dismissed.

The Trial Court rejected the petitioner's application (Exhibit 153) by order dated 25/10/2018, holding that the corporate insolvency resolution process did not extinguish the right of respondent No.1 to continue the suit. Earlier, in the suit proceedings, the defendants were granted conditional leave to defend. The resolution plan dated 03/02/2018 was approved by the NCLT on 15/05/2018 and the appeals against it were dismissed by the NCLAT on 10/08/2018.

Whether the suit for recovery filed by respondent No.1, an operational creditor, could survive after the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 had culminated in the approval of a resolution plan by the National Company Law Tribunal. Whether the Insolvency and Bankruptcy Code, 2016 has overriding effect over pending civil suits for recovery, in view of Sections 63 and 238 thereof.

Petitioner argued that the IBC has an overriding effect over all other laws, and once the corporate insolvency resolution process is initiated and a resolution plan is approved, all pending proceedings like the suit become not maintainable; respondent No.1 having participated as an operational creditor is bound by the resolution plan which explicitly provided that no amount was payable to operational creditors, and the suit must be dismissed. Respondent No.1 contended that the resolution plan itself created a separate fund for operational creditors and the suit is necessary to crystallize the exact amount payable; the IBC does not extinguish the right to pursue a civil suit that was already filed; the interpretation of the IBC does not lead to the dismissal of the suit, and the petitioner is misinterpreting the resolution plan to escape liability.

The question that arises for consideration in the present petition is, as to whether the petitioner herein (original defendant) is justified in contending that upon process of corporate insolvency resolution being triggered under the Insolvency and Bankruptcy Code, 2006 (IBC) and respondent No.1 (original plaintiff) having participated in the same, the suit for recovery of amount filed by respondent No.1 could no longer survive and that the Court of Joint Civil Judge, Senior Division, Nagpur (Trial Court) committed an error in rejecting the application filed by the petitioner for dismissal of the suit. It was contended that the resolution plan specifically stipulated that no amount was payable to operational creditors like respondent No.1 herein and that the liability of the petitioner to pay any amount to respondent No.1 stood extinguished.

In 2011, respondent No.1 filed a summary suit under Order XXXVII CPC for recovery of Rs.38,89,674.14 against Bhushan Steel Ltd. and its General Manager. Conditional leave to defend was granted. In 2016, the Insolvency and Bankruptcy Code, 2016 was enacted. State Bank of India filed an application under Section 7 IBC to initiate corporate insolvency resolution process against Bhushan Steel Ltd. A resolution professional was appointed, and public announcements were made inviting claims from creditors. Respondent No.1 submitted its claim as an operational creditor. The petitioner, as a resolution applicant, submitted a resolution plan on 03/02/2018. The plan was approved by the Committee of Creditors and subsequently by the National Company Law Tribunal on 15/05/2018. Appeals against the approval were dismissed by the National Company Law Appellate Tribunal on 10/08/2018, and the petitioner took over the company. On 11/09/2018, the petitioner filed an application (Exhibit 153) in the civil suit seeking dismissal, citing the IBC proceedings and resolution plan. The Trial Court rejected the application on 25/10/2018, holding that the suit could continue. The petitioner then filed the present writ petition challenging the Trial Court's order.

• Insolvency and Bankruptcy Code, 2016: 5(20), 7, 63, 238
• Code of Civil Procedure, 1908: Order XXXVII