Morarjee Textiles Ltd v. Union of India

What happened

Petitioner 1 (formerly Morarjee Brembana Limited) gave respondent 3, D.C. Weaving Mills Pvt. Ltd., a work order for weaving fabrics. The supplier filed Reference No. 25/2010 before the MSE Facilitation Council, Nagpur, which on 20 March 2012 awarded it ₹13,44,32,898. On 5 July 2012 the High Court issued rule and directed deposit of 75% of ₹13,40,00,000 as a condition for stay. In SLP (C) No. 27590/2012 the Supreme Court on 28 September 2012 stayed that direction subject to deposit of 60% of the principal in cash or a bank guarantee, which was furnished. On 13 February 2025 the Supreme Court dismissed the appeal, finding no error in the 75% condition because the recourse to writ was to avoid the pre-deposit under section 19, and directed encashment of the guarantee and transfer to the High Court. Meanwhile, on 9 February 2024 the NCLT admitted a section 7 application by Axis Bank, declared a moratorium and appointed an IRP, later the resolution professional. The RP and the supplier each applied (Civil Application Nos. 2413/2025 and 782/2025) to withdraw the deposited amount: the RP saying it is an asset of the corporate debtor in the CIRP, and the supplier saying section 19 intends the supplier to recover its blocked working capital while the litigation continues.

Questions before the court

• Is the amount deposited in court under the stay condition an asset of the corporate debtor, or the bank's or the supplier's?

Why the court ruled this way

The Supreme Court directed encashment because it found no error in the High Court's order to deposit 75% (paragraphs 5 and 6). The emphasis was on depositing the amount, whether by bank draft or by guarantee, and the encashment complied with the High Court's order (paragraph 7). The amount was deposited by the corporate debtor by court direction, and its character does not change merely because it was deposited after the CIRP began; it remains an asset of the corporate debtor and the resolution professional is entitled to control over it (paragraph 21). The petition itself was not maintainable since the petitioners had a statutory remedy under section 19 of the MSMED Act, including on jurisdiction, but the commencement of CIRP prohibits continuing or filing proceedings under section 14(1) of the IBC, and the supplier had lodged its claim as creditor with the resolution professional (paragraphs 22 and 23). The Court did not dismiss the petition for non-deposit of the balance, as the Supreme Court had not directed the rest to be deposited (paragraph 22).

Controlling point

The deposited amount is an asset of the corporate debtor and is to be released to the resolution professional.

Order and next steps

The petition was disposed of with a direction to the Registry to release the amount deposited, with accrued interest, to the resolution professional for payment to creditors under the IBC. The RP's application was partly allowed and the supplier's rejected; Civil Application No. 3462/2023 did not survive. At the request of the supplier's counsel, the release was to be made after four weeks unless the Supreme Court ordered otherwise. Writ Petition Nos. 3075, 3076 and 3078 of 2012, by the company's executive director, chairperson and managing director, were dismissed as not prosecuted.

Practical implications

An MSME award-holder whose award-debtor enters CIRP should lodge its claim with the resolution professional and not expect to withdraw court-deposited sums, since these remain the debtor's assets.

Limits of this ruling

• The Court did not decide the validity of the award or whether the supplier is an MSME; the result depends on the CIRP moratorium and the nature of the deposit.