Will Moratorium Under Section 14 IBC Always Bar Trial Of Counter-Claim In Suit By Corporate Debtor ? Delhi HC Answers [Read Judgment]

The Delhi High Court has held that moratorium under Section 14 of the Insolvency and Bankruptcy Code will not bar trial of suit by the corporate debtor and a counter-claim in such suit if issues and facts in both are intertwined.

The plaintiff company SSMP Industries had instituted the suit against Perkan Food Industries Pvt Ltd for recovery of Rs.1,61,47,336.44. The defendant made a counter-claim in the suit for Rs.59,51,548/-. Meanwhile the plaintiff company went into insolvency.

Therefore the issue arose whether the counter-claim was hit by Section 14 IBC.

Deciding the issue, Justice Prathiba Singh observed that all proceedings against the corporate debtor are not barred by Section 14 moratorium.

"until and unless the proceeding has the effect of endangering, diminishing, dissipating or adversely impacting the assets of corporate debtor, it would not be prohibited under Section 14(1)(a) of the Code.", observed the Court based on an earlier decision of Delhi HC in Power Grid Corporation of India v. Jyoti Structures Ltd.

The Court said that a "blinkered approach" cannot be taken in such cases to send all counter-claims to the NCLT. In this case, the suit and counter-claim arose out of same transaction. Moreover, even if the counter-claim is allowed, the plaintiff company would still recover amount from plaintiff, as the suit claim is higher. 

"The proceedings before NCLT are summary in nature and the RP does not conduct a trial. The RP merely determines what payment can be made towards the claims raised, subject to availability of funds. The NCLT/RP cannot be burdened with the  task of entertaining claims of the Defendant which are completely uncertain, undetermined and unknown. Moreover, the question as to whether the Defendant is in fact entitled to any amounts, if determined by the NCLT, prior to the adjudication of the plaintiff's claim for recovery, would result in the possibility of conflicting views in respect of the same transaction.

Under these circumstances, this court is of the opinion that the Plaintiff's and the defendant's claim ought to be adjudicated comprehensively by the same forum. At this point, till the defence is adjudicated, there is no threat to the assets of the corporate debtor and the continuation of the counter claim would not adversely impact the assets of the corporate debtor. Once the counter claims are adjudicated and the amount to be paid/recovered is determined, at that stage, or in execution proceedings, depending upon the situation prevalent, Section 14 could be triggered. At this stage, due to the reasons set out above, the counter claim does not deserve to be stayed under Section 14 of the Code", the Court held.

Click here to download judgment

Read Judgment