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Company & Insolvency LawSupreme Court of India

Anand Rao Korada (Resolution Professional) v. M/s Varsha Fabrics (P) Ltd. & Ors.

Civil Appeal · 2019 INSC 1259Decided 18 Nov 2019
Civil Appeal Nos. 8800-8801 of 2019
Justice Indu Malhotra · Justice R. Subhash Reddy

Background

A company (Hirakud Industrial Works Ltd.) went through a change of ownership and later shut down, leaving workers' dues unpaid. Litigation by the Hirakud Workers' Union in the Odisha High Court led to orders for auctioning the company's assets to pay worker dues. While that High Court litigation was still going on, a separate insolvency case was admitted against the same company by the National Company Law Tribunal (NCLT), triggering a statutory moratorium. Despite the moratorium, the High Court continued with interim orders relating to the auction of the company's land, prompting the court-appointed Resolution Professional to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that once the NCLT declares a moratorium under Section 14 of the IBC, all other legal proceedings against the corporate debtor, including auction/execution proceedings in a High Court, must stop. Sections 238 and 231 of the IBC give the Code overriding effect over other laws and bar civil courts from interfering once the NCLT's jurisdiction is triggered. The Court therefore set aside the Odisha High Court's interim orders dated 14.08.2019 and 05.09.2019, holding that the sale or liquidation of the company's assets must now proceed only under the IBC framework. The workers' union was given liberty to file a claim for its dues directly with the insolvency resolution professional under the applicable IBC regulations.

Lesson Learnt

Once a company enters formal insolvency proceedings and a moratorium is declared, all other courts and authorities must pause related litigation against that company: creditors and workers must pursue their claims through the insolvency process itself, not through parallel court cases.

Anand Rao Korada (Resolution Professional) v. M/s Varsha Fabrics (P) Ltd. & Ors. – Legal Case Shots | LegalAware