The dispute in question is between Dynepro Pvt. Ltd. and V. Nagarajan. V. Nagarajan was appointed as the Resolution Professional of the Corporate Debtor (Cethar Ltd.) after the company entered Corporate Insolvency Resolution Process (CIRP). (Dynepro Private Limited vs. V. Nagarajan).
The claim of Dynepro in the present dispute is that it engaged the Corporate Debtor in a work through a job order. Under such job order, Dynepro had forwarded certain materials to the Corporate Debt or that were to be used for the completion of such work. The materials originally belonged to G.B. Engineering, a client of Dynepro.
In the CIRP proceedings against the Corporate Debtor, Dynepro made an application (CA/65/IB/2018 in CP/511/IB/2017) before the National Company Law Tribunal, Chennai Bench (NCLT)under Sections 23 and 25 of the Insolvency and Bankruptcy Code, 2016 (IBC) praying for a direction on the Resolution Professional to release such materials from the possession of the Corporate Debtor.
The Resolution Professional contended that all of Dynepro’s Promoters and Managing Directors are related parties and were also the Managing Directors of the Corporate Debtor for a specific period of time and are now seeking to take advantage of their knowledge about the operations of the Corporate Debtor and are also acting beyond the terms of the non-compete clause that they are bound by. It was the counter allegation of the Resolution Professional that Dynepro is merely trying to defraud the Corporate Debtor.
Dynepro presented facts and documents to prove that the materials in question actually belong to G.B. Engineering. Since the materials had only been forwarded in relation to a specific job order which is not in continuance anymore, the Resolution Professional on behalf of the Corporate Debtor is bound to return such materials to Dynepro and the rightful owners.
NCLT considered the arguments and passed an order dated 24th April, 2018 wherein it held that the prayers of the applicant could not be granted because the facts and documents did not match the assertions made by the applicant. The NCLT found that there were contradictions in the issues of job order, the documents seemed to be forged since the signatory of a particular document was not associated with the Corporate Debtor on the date when such document was signed.
An appeal [Company Appeal (AT) (Insolvency) no. 229 of 2018] was preferred by Dynepro before the National Company Law Appellate Tribunal, New Delhi (NCLAT) against the order of NCLT.
The issue that the NCLAT answered was whether the Adjudicating Authority under the IBC is permitted to decide the claims and counter claims between the parties.
It relied on Binani Industries Limited vs. Bank of Baroda [Company Appeal (AT) (Insolvency) No. 82 of 2018]which held that the CIRP process is not a money claim or a suit proceeding where the Adjudicating Authority may decide on a question of fact or settle claims between parties in respect of a matters that may be in dispute.
NCLAT also relied on Section 18 of the IBC which lists the Duties of the Interim Resolution Professional. It observed that the Explanation thereunder states that the “assets” within the meaning of Section 18(1) shall not include assets owned by a third party in possession of the corporate debtor held under contractual arrangements including bailment.
Further the court observed that the material in question in the present case was a part of multiple inter-claims as other parties had also made claims over the ownership of such material.
Section 60(5) was also relied on to interpret the jurisdiction of NCLT.
On a construction of the provisions discussed above and on consideration of the relevant facts, the NCLAT dismissed the appeal by an order dated 30th January, 2019. NCLAT held that:
Disputes relating to claim over certain materials could not be viewed to fitwithin the scope of Section 60(5) and hence could not be decided by the adjudicating authority.
Only after the completion of the CIRP process and the moratorium period coming to an end, when a decision in regard to such materials is finally taken, the parties may file a suit claiming that such decision holding that the material belonged to the Corporate Debtor is wrong and the same may be challenged in such suit and claim against the same may be made.
The adjudicating authority has no jurisdiction over the claims or counter claims made between the parties in the present case and therefore, NCLT was right in not passing any orders in the application by Dynepro, praying for a direction on the Resolution Professional in relation to the materials.
An appeal against the order of NCLAT was also preferred by Dynepro before the Supreme Court (Civil Appeal No. 2391 of 2019). A Division Bench by an order dated 8th March, 2019 dismissed the appeal and held that there were no reasons for interference with the order of NCLAT.
The decision of NCLAT brings out the essence of Section 60(5) in establishing that the NCLT cannot act as a fact-finding forum when the CIRP against a Corporate Debtor has been admitted and initiated under the provisions of IBC nor act like a money recovery court.
This has been contemplated in other decisions of the NCLAT and Supreme Court which held that NCLT, within the powers and jurisdiction conferred by the IBC, could only adjudicate upon issues directly related to the CIRP and reconstruction of the corporate debtor or liquidation thereof. The judgment in Gujrat Urja Vikas Nigam Limited vs. Amit Gupta (2021 SCC OnLine SC 194) is significant in this aspect since the Supreme Court held that NCLT may only adjudicate over disputes relating to the insolvency process and in that case, the contractual dispute arose out of and by reason of the initiation of CIRP against the corporate Debtor.
The decision of NCLAT is also in line with Mobilox Innovations Private Limited vs. Kirusa Software [(2018) 1 SCC 353] Private Limited where the Supreme Court had clearly held that IBC is not intended to be substituted as a recovery forum. This decision was also followed in Transmission Corporation of Andhra Pradesh Limited vs. Equipment Conductors and Cables Limited [(2019) 12 SCC 696].
The decision of NCLT, Principal Bench at New Delhi in a Composite Scheme of Arrangement between Quick calls Private Limited and Others [CA(CAA)-75(ND)/2020], although based on entirely different facts, laid down an important observation regarding the jurisdiction of NCLT. It held that the Tribunal is limited to deal with the powers conferred upon it by the parent statute. Since the cases may be dependent on multiple facts, the statute under which it is approached may be the guiding principle for NCLT to determine its jurisdiction.
The decision in the Dynepro case may thus be interpreted to mean that the facts and the law in question may be important in determining when and under what circumstances can the NCLT pass orders specific to the relief sought for. But in all cases, it is conclusively held that NCLT have no power to decide on the claims/counter claims on merits.
