# MR. ANAND RAO KORADA RESOLUTION PROFESSIONAL v. M/S. VARSHA FABRICS (P) LTD. & ORS

- **Citation:** [2019] 14 S.C.R. 695
- **Court:** Supreme Court of India
- **Decided:** 2019-11-18
- **Case number:** Civil Appeal Nos. 8800-8801 of 2019
- **Bench:** Indu Malhotra, R. Subhash Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mr-anand-rao-korada-resolution-professional-v-m-s-varsha-fabrics-p-ltd-ors-33368
- **Pages:** 9

## Headnote

Insolvency and Bankruptcy Code, 2016 - ss.7, 13, 14, 231
and 238 - Respondent No.5 divested its 100% shareholding in
respondent No.4 in favour of respondent Nos.1 to 3 - Respondent
No.4 shut down its factory - Respondent No.13-Workers' Union
filed writ petition and sought payment of arrears and current
salaries of the workmen - High Court directed Labour court to
quantify the amount payable to workmen - During the pendency
of the writ petition, a financial creditor filed petition u/s 7 of the
IBC, 2016 before NCLT for initiation of the Corporate Insolvency
Resolution Process (CRPF) against respondent No.4 - NCLT
declared moratorium u/s.14 of the IBC - During the pendency of
moratorium, in the pending writ petition High Court directed
valuation of a land owned by respondent No.4 and passed the
orders for carrying out auction of the assets of the respondent No.4
- Propriety of - Held: Not proper - In view of the provisions of
the IBC, the High Court was not justified in passing the orders
for carrying out auction of the assets of the respondent No.4, once
the proceedings under the IBC had commenced and an order
declaring moratorium was passed by the NCLT - Alienation of the
assets of the respondent No.4 during the pendency of the
proceedings under the IBC would jeopardise the interest of all the
stakeholders - However, it is open for the respondent No.13 to file
an application u/regulation 9 of the IBC for payment of arrears,
salaries before the competent authority - Therefore, orders passed
by the High Court set aside.
Allowing the appeals, the Court
HELD: 1. The Insolvency and Bankruptcy Code, 2016 was
published in the Gazette of India on 28.05.2016. It was framed
as a complete code to consolidate and amend the laws relating
to insolvency resolution of corporate entities, partnership firms,
 [2019] 14 S.C.R. 695
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[2019] 14 S.C.R.
and individuals in a time-bound manner, for maximisation of the
value of the assets of such persons, and balance the interest of
all the stakeholders. The Corporate Insolvency Resolution
Process ("CIRP") could be initiated when a corporate debtor
commits a default, either by a financial creditor, or an operational
creditor, or the corporate debtor itself. Section 12 of the IBC
provides a time-frame to complete the CIRP. As per Section
13 of the IBC, the Adjudicating Authority i.e. the National
Company Law Tribunal ("NCLT") shall declare a moratorium for
the purposes referred to in Section 14 of the IBC. [Para 6] [699G-H; 700-A-B]
2. In view of the provisions ss.14, 231 and 238 of the IBC,
the High Court ought not to have proceeded with the auction
of the property of the Corporate Debtor - Respondent No. 4
herein, once the proceedings under the IBC had commenced,
and an Order declaring moratorium was passed by the NCLT.
The High Court passed the impugned Interim Orders dated
14.08.2019 and 05.09.2019 after the CIRP had commenced in
this case. The moratorium having been declared by the NCLT
on 04.06.2019, the High Court was not justified in passing the
Orders dated 14.08.2019 and 05.09.2019 for carrying out auction
of the assets of the Respondent No. 4 - Company i.e. the
Corporate Debtor before the NCLT. The subject matter of the
auction proceedings before the High Court is a vast chunk of
land admeasuring about 330 acres, including Railway lines and
buildings. If the assets of the Respondent No. 4 - Company are
alienated during the pendency of the proceedings under the IBC,
it will seriously jeopardise the interest of all the stakeholders.
As a consequence, this Court set aside the impugned Interim
Orders dated 14.08.2019 and 05.09.2019 passed by the High
Court, as parallel proceedings with respect to the main issue
cannot take place in the High Court. The sale or liquidation of
the assets of Respondent No. 4 will now be governed by the
provisions of the IBC. [Para 9] [702-B-F]

## Text

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MR. ANAND RAO KORADA RESOLUTION PROFESSIONAL
v.
M/S. VARSHA FABRICS (P) LTD. & ORS.
(Civil Appeal Nos. 8800-8801 of 2019)
NOVEMBER 18, 2019
[INDU MALHOTRA AND R. SUBHASH REDDY JJ.]
Insolvency and Bankruptcy Code, 2016 - ss.7, 13, 14, 231
and 238 - Respondent No.5 divested its 100% shareholding in
respondent No.4 in favour of respondent Nos.1 to 3 - Respondent
No.4 shut down its factory - Respondent No.13-Workers' Union
filed writ petition and sought payment of arrears and current
salaries of the workmen - High Court directed Labour court to
quantify the amount payable to workmen - During the pendency
of the writ petition, a financial creditor filed petition u/s 7 of the
IBC, 2016 before NCLT for initiation of the Corporate Insolvency
Resolution Process (CRPF) against respondent No.4 - NCLT
declared moratorium u/s.14 of the IBC - During the pendency of
moratorium, in the pending writ petition High Court directed
valuation of a land owned by respondent No.4 and passed the
orders for carrying out auction of the assets of the respondent No.4
- Propriety of - Held: Not proper - In view of the provisions of
the IBC, the High Court was not justified in passing the orders
for carrying out auction of the assets of the respondent No.4, once
the proceedings under the IBC had commenced and an order
declaring moratorium was passed by the NCLT - Alienation of the
assets of the respondent No.4 during the pendency of the
proceedings under the IBC would jeopardise the interest of all the
stakeholders - However, it is open for the respondent No.13 to file
an application u/regulation 9 of the IBC for payment of arrears,
salaries before the competent authority - Therefore, orders passed
by the High Court set aside.
Allowing the appeals, the Court
HELD: 1. The Insolvency and Bankruptcy Code, 2016 was
published in the Gazette of India on 28.05.2016. It was framed
as a complete code to consolidate and amend the laws relating
to insolvency resolution of corporate entities, partnership firms,
 [2019] 14 S.C.R. 695
695
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SUPREME COURT REPORTS
[2019] 14 S.C.R.
and individuals in a time-bound manner, for maximisation of the
value of the assets of such persons, and balance the interest of
all the stakeholders. The Corporate Insolvency Resolution
Process ("CIRP") could be initiated when a corporate debtor
commits a default, either by a financial creditor, or an operational
creditor, or the corporate debtor itself. Section 12 of the IBC
provides a time-frame to complete the CIRP. As per Section
13 of the IBC, the Adjudicating Authority i.e. the National
Company Law Tribunal ("NCLT") shall declare a moratorium for
the purposes referred to in Section 14 of the IBC. [Para 6] [699G-H; 700-A-B]
2. In view of the provisions ss.14, 231 and 238 of the IBC,
the High Court ought not to have proceeded with the auction
of the property of the Corporate Debtor - Respondent No. 4
herein, once the proceedings under the IBC had commenced,
and an Order declaring moratorium was passed by the NCLT.
The High Court passed the impugned Interim Orders dated
14.08.2019 and 05.09.2019 after the CIRP had commenced in
this case. The moratorium having been declared by the NCLT
on 04.06.2019, the High Court was not justified in passing the
Orders dated 14.08.2019 and 05.09.2019 for carrying out auction
of the assets of the Respondent No. 4 - Company i.e. the
Corporate Debtor before the NCLT. The subject matter of the
auction proceedings before the High Court is a vast chunk of
land admeasuring about 330 acres, including Railway lines and
buildings. If the assets of the Respondent No. 4 - Company are
alienated during the pendency of the proceedings under the IBC,
it will seriously jeopardise the interest of all the stakeholders.
As a consequence, this Court set aside the impugned Interim
Orders dated 14.08.2019 and 05.09.2019 passed by the High
Court, as parallel proceedings with respect to the main issue
cannot take place in the High Court. The sale or liquidation of
the assets of Respondent No. 4 will now be governed by the
provisions of the IBC. [Para 9] [702-B-F]
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos 88008801 of 2019.
From the Judgment and Order dated 14.08.2019 & 05.09.2019
of the High Court of Orissa at Cuttack in W.P. (C) No. 7939 of 2011.
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Siddharth Bhatnagar, Sr. Adv., Ashok Jain, Pankaj Jain, Amit
Kasera, Bijoy Kumar Jain, Aditya Sidhra, Advs. for the Appellant.
Vikramjeet Banerjee, ASG, C.U. Singh, Sr. Adv., Shibashish
Misra, S. Debabrata Reddy, Ashish Prasad, Ms. Mukta Dutta, Rajesh
J., Avinash Tripathi, Zain Maqbool, Rohit Sharma, Mahfooz Ahsan Nazki,
Rajesh K. Singh, R.R. Rajesh, Anshul Gupta,. Sudhakar Kulwant, Raj
Bahadur Yadav, Ms. Archana Pathak Dave, Sandeep Pathak, for the
Respondents.
The Judgment of the Court was delivered by
INDU MALHOTRA, J.
Leave granted.
1. The present Civil Appeals have been filed by the Appellant -
Resolution Professional appointed by the National Company Law
Tribunal for the Corporate Debtor - M/s Hirakud Industrial Works Ltd.,
to challenge the interim Orders dated 14.08.2019 and 05.09.2019 passed
by the Odisha High Court in W.P. (Civil) No. 7939/2011.
2. This Court vide Order dated 23.09.2019 issued Notice to all
the parties, including the Writ Petitioners i.e. the Hirakud Workers'
Union - Respondent No. 13 herein. The Appellant was directed to serve
Dasti Notice to all the Respondents, and the auction proceedings before
the High Court were directed to be stayed.
3. Pursuant to the issuance of Notice, all the Respondents were
served by the Appellant, and proof of service was filed on 04.11.2019.
Respondent No. 13 - Hirakud Workers' Union was however not
represented by Counsel. The Civil Appeals were taken up for hearing
on 13.11.2019 before this Court.
4. The factual matrix in which the present Civil Appeals have
been filed is as under :-
4.1 M/s Varsha Fabrics Pvt. Ltd. (Respondent No. 1), India
Finance Ltd. (Respondent No. 2), Mudrika Commercial
Pvt. Ltd. (Respondent No. 3), Hirakud Industrial Works
Ltd. (Respondent No. 4), and Industrial Development
Corporation of Orissa Ltd. (Respondent No. 5) entered into
a Share Purchase Agreement ("SPA") dated 10.07.2006.
As per the SPA, Respondent No. 5 divested its 100%
shareholding in Respondent No. 4 in favour of Respondent
Nos. 1 to 3. Respondent No. 4 shut down its factory on
08.05.2007.
MR. ANAND RAO KORADA RESOLUTION PROFESSIONAL
v. M/S. VARSHA FABRICS (P) LTD.
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4.2 Subsequently, Respondent Nos. 1 to 3 sold their stake in
Respondent No. 4 to Indo Wagon Engineering Ltd.
Respondent No. 13 - the Hirakud Workers' Union filed
W.P. (Civil) No. 12479/2009 before the Odisha High Court
praying inter alia for cancellation of the SPA dated
10.07.2006, and payment of the arrears and current salaries
of the workmen.
4.3 Respondent No. 13 filed another Writ Petition bearing W.P.
(Civil) No. 7939/2011 on 28.03.2011 for payment of their
dues before the Odisha High Court.
4.4 The High Court vide Order dated 14.03.2012 directed the
Deputy Labour Commissioner, Sambalpur Division
(Respondent No. 10 herein) to recover the workmen's dues
by sale of the assets of Respondent No. 4 - Company
through a public auction.
4.5 These proceedings culminated in the Order dated
03.08.2015 passed by this Court, wherein it was directed
that the issue of quantifying the compensation payable to
the workmen should be determined by the Labour Court.
It was further directed that if Respondent Nos. 1 to 3 fail
to make the payment of compensation to the workmen, the
assets of Respondent No. 4 would be sold through public
auction, and the proceeds would be used for disbursement
of the arrears of the workmen.
4.6 The Labour Court, Sambalpur vide Order dated 11.11.2016
quantified the amount payable to the workmen as Rs.
45,66,67,133/-.
4.7 The High Court vide Order dated 12.01.2017 directed the
Deputy Labour Commissioner, Sambalpur Division to sell
a parcel of Respondent No. 4's land admeasuring 157.27
acres to the Hirakud Dam Project.
Upon receipt of the sale proceeds of Rs. 10,04,12,105/-
from the Government of Orissa, this amount was disbursed
towards the arrears of the workmen's dues.
4.8 During the pendency of proceedings before the High Court
in W.P. (Civil) No. 7939/2011, M/s Nandakini Contractors
Pvt. Ltd - a Financial Creditor filed a Petition under
Section 7 of the IBC, 2016 bearing CP (IB) No. 01/CTB/
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2019, before the National Company Law Tribunal, Cuttack
Bench ("NCLT") for initiation of the Corporate Insolvency
Resolution Process ("CIRP") against the Corporate Debtor
- Respondent No. 4, since it had committed a default in
paying the financial debt of Rs. 24,11,975/-.
4.9 The NCLT vide Order dated 04.06.2019 admitted the
insolvency petition, and declared a moratorium in
accordance with the provisions of Sections 13 and 15 of
the IBC. The moratorium was declared for the purpose
referred to in Section 14 of the IBC. The Appellant herein
was appointed as the Insolvency Resolution Professional.
4.10 During the pendency of the moratorium, W.P. (Civil) 7939/
2011 was posted for hearing on 14.08.2019 before the High
Court. The Additional Government Advocate submitted
that the valuation of the land in Mouza - Tara Nagar owned
by Respondent No. 4 was Rs. 6,05,000/- per acre. The
High Court directed the Additional Government Advocate
to file an affidavit with respect to the valuation conducted.
4.11 The High Court by a further Order dated 05.09.2019,
recorded the submission of the Appellant - Resolution
Professional that there were other companies which had
expressed an interest to participate in the public auction.
The matter was posted for further hearing on 17.09.2019.
4.12 The Appellant - Resolution Professional filed the present
Civil Appeals to challenge the Interim Orders dated
14.08.2019 and 05.09.2019 passed by the Odisha High
Court in W.P. (Civil) No. 7939/2011 on the ground that since
the CIRP against Respondent No. 4 had commenced, the
proceedings before the High Court in W.P. (Civil) No.
7939/2011 ought to be stayed.
5. We have heard the learned Counsel appearing for the
Appellant - Resolution Professional, Respondent Nos. 1 to 3, and
Respondent No. 8 - HINDALCO.
6. The IBC was published in the Gazette of India on 28.05.2016.
It was framed as a complete code to consolidate and amend the laws
relating to insolvency resolution of corporate entities, partnership firms,
and individuals in a time-bound manner, for maximisation of the value
of the assets of such persons, and balance the interest of all the
MR. ANAND RAO KORADA RESOLUTION PROFESSIONAL
v. M/S. VARSHA FABRICS (P) LTD. [INDU MALHOTRA, J.]
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stakeholders. The Corporate Insolvency Resolution Process ("CIRP")
could be initiated when a corporate debtor commits a default, either by
a financial creditor, or an operational creditor, or the corporate debtor
itself.
Section 12 of the IBC provides a time-frame to complete the
CIRP.
As per Section 13 of the IBC, the Adjudicating Authority i.e. the
National Company Law Tribunal ("NCLT") shall declare a moratorium
for the purposes referred to in Section 14 of the IBC.
Section 14 provides that on the insolvency commencement date,
the Adjudicating Authority shall by order, declare a moratorium
prohibiting the institution of suits, or continuation of pending suits or
"proceedings" against the corporate debtor, including execution of any
judgment, decree, or order in any court of law, tribunal, arbitration panel,
or any other authority. Section 14 reads as follows :
"14. Moratorium. -
(1) Subject to provisions of sub-sections (2) and (3), on
the insolvency commencement date, the Adjudicating
Authority shall by order declare moratorium for
prohibiting all of the following, namely: -
(a) the institution of suits or continuation of pending
suits or proceedings against the corporate debtor
including execution of any judgement, decree or
order in any court of law, tribunal, arbitration
panel or other authority;
(b) transferring, encumbering, alienating or disposing
off by the corporate debtor any of its assets or any
legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any
security interest created by the corporate debtor in
respect of its property including any action under
the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the
possession of the corporate debtor.
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(2) The supply of essential goods or services to the
corporate debtor as may be specified shall not be
terminated or suspended or interrupted during
moratorium period.
(3) The provisions of sub-section (1) shall not apply to -
(a) such transaction as may be notified by the Central
Government in consultation with any financial
regulator;
(b) a surety in a contract of guarantee to a corporate
debtor.
(4) The order of moratorium shall have effect from the date
of such order till the completion of the corporate
insolvency resolution process:
Provided that where at any time during the corporate
insolvency resolution process period, if the Adjudicating
Authority approves the resolution plan under sub-section (1)
of section 31 or passes an order for liquidation of corporate
debtor under section 33, the moratorium shall cease to have
effect from the date of such approval or liquidation order,
as the case may be."
7. Section 238 gives an overriding effect to the IBC over all other
laws. The provisions of the IBC vest exclusive jurisdiction on the NCLT
and the NCLAT to deal with all issues pertaining to the insolvency
process of a corporate debtor, and the mode and manner of disposal
of its assets. Section 238 reads as follows :
"238. Provisions of this Code to override other laws. -
The provisions of this Code shall have effect, notwithstanding
anything inconsistent therewith contained in any other law
for the time being in force or any instrument having effect
by virtue of any such law."
8. Section 231 of the IBC bars the jurisdiction of civil courts in
respect of any matter in which the Adjudicating Authority i.e. the NCLT
or the NCLAT is empowered by the Code to pass any Order. Section
231 is set out hereinbelow for ready reference :
"231. Bar of jurisdiction. -
No civil court shall have jurisdiction in respect of any matter
in which the Adjudicating Authority or the Board is
MR. ANAND RAO KORADA RESOLUTION PROFESSIONAL
v. M/S. VARSHA FABRICS (P) LTD. [INDU MALHOTRA, J.]
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empowered by, or under, this Code to pass any order and
no injunction shall be granted by any court or other
authority in respect of any action taken or to be taken in
pursuance of any order passed by such Adjudicating
Authority or the Board under this Code."
9. In view of the provisions of the IBC, the High Court ought
not to have proceeded with the auction of the property of the Corporate
Debtor - Respondent No. 4 herein, once the proceedings under the
IBC had commenced, and an Order declaring moratorium was passed
by the NCLT. The High Court passed the impugned Interim Orders
dated 14.08.2019 and 05.09.2019 after the CIRP had commenced in
this case.
The moratorium having been declared by the NCLT on
04.06.2019, the High Court was not justified in passing the Orders dated
14.08.2019 and 05.09.2019 for carrying out auction of the assets of the
Respondent No. 4 - Company i.e. the Corporate Debtor before the
NCLT. The subject matter of the auction proceedings before the High
Court is a vast chunk of land admeasuring about 330 acres, including
Railway lines and buildings.
If the assets of the Respondent No. 4 - Company are alienated
during the pendency of the proceedings under the IBC, it will seriously
jeopardise the interest of all the stakeholders.
As a consequence, we set aside the impugned Interim Orders
dated 14.08.2019 and 05.09.2019 passed by the Odisha High Court, as
parallel proceedings with respect to the main issue cannot take place
in the High Court. The sale or liquidation of the assets of Respondent
No. 4 will now be governed by the provisions of the IBC.
10. It is open for Respondent No. 13 - Hirakud Workers' Union
to file an application under Regulation 9 of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 for payment of arrears, salaries
and other dues before the competent authority. Regulation 9 reads as
follows :-
"9. Claims by workmen and employees.
(1) A person claiming to be a workman or an employee of
the corporate debtor shall submit claim with proof to the
interim resolution professional in person, by post or by
electronic means in Form D of the Schedule:
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Provided that such person may submit supplementary
documents or clarifications in support of the claim, on his
own or if required by the interim resolution professional,
before the constitution of the committee.
(2) Where there are dues to numerous workmen or employees
of the corporate debtor, an authorised representative may
submit one claim with proof for all such dues on their behalf
in Form E of the Schedule.
(3) The existence of dues to workmen or employees may be
proved by them, individually or collectively on the basis of -
(a) records available with an information utility, if any; or
(b) other relevant documents, including -
(i) a proof of employment such as contract of
employment for the period for which such workman
or employee is claiming dues;
(ii) evidence of notice demanding payment of unpaid
dues and any documentary or other proof that
payment has not been made; or
(iii) an order of a court or tribunal that has adjudicated
upon the non-payment of a dues, if any."
11. Mr. C.U. Singh, Senior Advocate appeared for Respondent
No. 8 - HINDALCO, which had participated in the public auction of
the aforesaid chunk of land before the High Court. The Counsel raised
serious objections to the stay of the auction proceedings. He sought
permission to file an application before the appropriate authority for
deciding the objections raised by Respondent No. 8.
Mr. Siddharth Bhatnagar, Senior Advocate who was representing
the Appellant - Resolution Professional, reserved his right to raise all
pleas and contentions, including the plea of locus standi, if such an
application is filed by Respondent No. 8.
The parties are granted liberty to pursue whatever remedies are
available in accordance with law.
The Civil Appeals are allowed in the aforesaid terms.
Ankit Gyan
Appeals allowed.
MR. ANAND RAO KORADA RESOLUTION PROFESSIONAL
v. M/S. VARSHA FABRICS (P) LTD. [INDU MALHOTRA, J.]