Moratorium Order Passed By US Bankruptcy Court Could Not Bind Indian Courts For Stay Of Suit: Calcutta HC
The Calcutta High Court has observed that the moratorium order of the U.S Bankruptcy Court could not bind an Indian Court to stay the suit.
The Bench of Justice Shampa Sarkar observed, “The suit was at the stage of hearing of application of Section 45 of the Arbitration and Conciliation Act and the injunction hearing has not yet taken place. The order of the U.S Bankruptcy Court is one of the factors which may be looked into by the learned court if the court deems it necessary. The said order could not bind the learned trial judge to stay the suit. A reading of the moratorium order indicates that the order operates in the field of Chapter 11 cases under the said code, especially with regard to money claim or claims which would result in depletion of assets.”
Senior Advocates S.N. Mookherji and Ratnanko Banerji appeared for the Petitioner whereas Senior Advocate Abhrajit Mitra appeared for the Respondent.
A revision application was filed against an order passed by the Commercial Judge rejecting an application filed by the Petitioner, who was the Defendant in the suit. The Application was filed with a prayer for a stay of further proceedings of the suit upon expiry of the moratorium in the U.S. Bankruptcy proceeding.
The Commercial Court held that the moratorium order of the U.S. Bankruptcy Court was not applicable in India. The U.S.A had not been declared as a reciprocating territory for the purpose of Section 44A Code of Civil Procedure.
The Commercial Court further held that although the moratorium order of the U.S Bankruptcy Court was quite akin to Section 14 of the Indian Bankruptcy Code, 2016 (IBC 2016), the IBC 2016 was only applicable within the territory of India. In the absence of a Central Government notification in the Official Gazette declaring the U.S.A. to be a reciprocating territory, the moratorium order would not be automatically enforceable under Section 44A Code of Civil Procedure.
The provisions of Sections 13 and 14 of the Code of Civil Procedure, 1908, were also not applicable in the present factual matrix because the bankruptcy order was not passed in a proceeding between the parties to the suit.
The Court observed that the inherent powers of the court were invoked for the stay of the suit, although the Code of Civil Procedure has a specific provision for the stay of a suit and even assuming that nomenclature would not be of any consequence and the application could be treated as an application for stay, the explanation to Section 10 somewhat answers the issue. The court was not bound to stay the suit only because the proceeding was going on in a foreign country, it said.
The Court held, “The issue of cross-border insolvency has been emerging under several jurisdictions, due to an increase in transnational transactions and establishment of various branches and offices in different countries. Recognition of foreign proceedings has assumed prime importance in an effective cross-border insolvency regime. While the Indian courts do recognize foreign judgments and decrees of some reciprocating countries such as the UK and Singapore, no recognition has been accorded to foreign proceedings, particularly with regard to insolvency proceedings such as reorganizations…While the IBC 2016 presents opportunities for improving the domestic insolvency system in the country, India has not yet come up with a comprehensive framework dealing with cross-border insolvency under the Code.”
The Court relied on the judgment of the Supreme Court in Nithya Anand Raghavan vs State (NCT OF DELHI) and Anr. (2017 SC), M/s. Alcon Electronic Pvt. Ltd. v Celem S.A. OF Fos 34320 Roujan, France & Anr., (2016 SC) and Toshiaki Aiba as The Bankruptcy Trustee of The Estate of Vipun Kumar Sharma Vs. Vipan Kumar Sharma and Ors.(2022 Delhi).
Accordingly, the Court dismissed the Application and directed that the suit would proceed.
Cause Title: Uphealth Holdings, INC. v. Dr. Syed Sabahat Azim and Ors.
Appearances:
Petitioner: Senior Advocates S.N. Mookherji, Ratnanko Banerji, Advocates Suddhasatva Banerjee, Anand S. Pathak, Vijay Purohit, Shivam Pandey, Avijit Mookherji, Anirudhya Dutta, Shyra Hoon, Nav Dhawan, Naman Choudhury
Respondents: Senior Advocate Abhrajit Mitra, Advocate Krishna Rai Thakkar, Debashis Karmakar, Sarvapriya Mukherjee, Arya Nandi, Pijush Agarwal, Parikshit Lakhotia and Satyam Ojha.
