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2022 (2) TMI 627 - AT - Insolvency and BankruptcySale of assets of Corporate Debtor during moratorium period - prohibition on Corporate Debtor only or the prohibition also operate on the RP and CoC in exercise of their duties and jurisdiction under the Code - Whether the Appellant has right to challenge the decision of the NCLT dated 11th June, 2020? - HELD THAT:- The Respondents have challenged the locus of the Appellant to file this Appeal questioning the order dated 11th June, 2020 passed by the Adjudicating Authority. The Appellant is a registered Trade Union representing 95% of the aircraft maintenance engineers of the Corporate Debtor. The Appellant’s Union had submitted a claim and Respondent No.1 has admitted claim worth INR 1,525,859,239/-. The Appellant is a stakeholder in the CIRP, its claim having been admitted. The Appellant has come up in this Appeal questioning the order of the NCLT dated 11th June, 2020 by which it has granted approval to the proposal of CoC and RP to sell the subject assets of the Corporate Debtor. The Appellant being stakeholder in the CIRP has interest in the assets of the Corporate Debtor, since it is the value of assets, which will be relevant for determination of its claim either in the Resolution Plan or in the liquidation proceedings - Whether the sale is in accordance with the provisions of the Code or not is a question on merit, which we shall proceed to consider while considering the other issues as noted above. However, insofar as the submission of the Respondent that Appellant is not an aggrieved person, we do not find ourselves in agreement with the submission of learned Counsel for the Respondents. The Appellant has sufficient locus to file this Appeal. The Appellant is a person aggrieved within the meaning of Section 61 of the Code and the Appeal on behalf of the Appellant is fully maintainable. Whether the prohibition contained under Section 14, sub-section (1), sub-clause (b) is only on the Corporate Debtor or the prohibition also operate on the RP and CoC in exercise of their duties and jurisdiction under the Code? - Whether RP in exercise of power under Regulation 29 of CIRP Regulation, 2016 can sell the assets of Corporate Debtor during the currency of Moratorium declared under Section 14 of the Code? - HELD THAT:- The Moratorium which comes into operation by order of the Adjudicating Authority on the insolvency commencement date is limited to the date when Adjudicating Authority approves the Resolution Plan under sub-section (1) of Section 31 or passes an order of liquidation under Section 33. The Moratorium is to cease to have an effect from either of the above dates. Thus, the life of Moratorium is not indefinite and is limited. Normally, period of completion of CIRP is 180 days and an ultimate time limit taking into consideration including all extension is 330 days as required by Section 12, sub-section (3). The object of the Code is clearly that there should be no depletion of Corporate Debtor’s assets during the CIRP - submission of learned Counsel for the Appellant relying on the above judgment of Hon’ble Supreme Court is correct that there is statutory freeze when Moratorium is done under Section 14. The question to be answered is as to whether the statutory freeze, which comes into operation has any exception to it, or the prohibition contained in Section 14 is absolute - The prohibition under Section 14(1)(b) is also regarding encumbering the assets of Corporate Debtor. When Section 28(1) expressly provides for approval of Committee of Creditors for creating any security interest over the assets of the Corporate Debtor, this is a clear exception engrafted under the Code itself to Section 14(1)(b). The above scheme of the Code leads us to come to the conclusion that injunction under Section 14(1)(b) is against the Corporate Debtor, which provision does not restrain any other entity authorised under the Code to transfer, encumber or alienate the assets of the Corporate Debtor. Thus, prohibition under Section 14(1)(b) has to be read along with exceptions created in the Code itself. RP was of the opinion that sale of asset shall result in better realization of the value. In the same meeting dated 24th April, 2020, the CoC has passed Resolution, approving minimum sale consideration for the sale of two floors being 3rd and 4th floors of BKC property as INR 490 crores. The CoC although in its Resolution has contemplated for approval of NCLT for carrying out sale transaction. Thus, the condition as contained in Regulations 29, sub-regulation (2) by approval of the CoC and Section 28, sub-section (3) by minimum 66% of vote is satisfied, since the Resolution was passed by CoC with 74.45% of votes. We further notice that under Regulation 29, the jurisdiction has been given to the RP to sell unencumbered assets. Thus, the sale is permissible of only unencumbered assets. In the present case, subject property was under encumbrance, since the Corporate Debtor had taken a loan from HDFC on the security of 2nd, 3rd and 4th floors of the subject property - The prohibition under Section 14(1)(b) thus in transferring the assets of the CD is throughout the currency of CIRP except where statute specifically empowers RP to carry the sale on fulfillment of conditions as laid down in the statute. Whether decision of RP to proceed with the sale of BKC property and approval of CoC of the said proposal by its Resolution in the meeting dated 24th April, 2020 is impermissible by virtue of declaration and Moratorium under Section 14(1)? - HELD THAT:- The decision of RP to proceed with the sale of BKC property after approval of the CoC in the meeting dated 24th April, 2020 was permissible and was not interjected by virtue of declaration of Moratorium under Section 14(1)(b). Whether in view of Section 14, sub-section (1), sub-clause (c) of the Code, no Financial Creditor can foreclose, recover any debt or enforce any security interest created by the Corporate Debtor in respect of its property? - HELD THAT:- In CIRP no Secured Creditor can realize its claim or its debt due to prohibition imposed under Section 14(1)(c). The provisions of the Code and the CIRP Regulations, do not contain any exception to the effect that a Secured Creditor can be paid during CIRP process. If it is permitted, then Secured Creditors can realize their security or recover their security interest during CIRP. The Financial Creditors who are mostly the Secured Creditors shall always lean in favour of realizing their dues, adversely affecting the rights of other stakeholders, which is not permissible in CIRP. The Appellant, a stakeholder in the CIRP must have received due consideration in the final Resolution Plan approved on 22nd June, 2021, which Resolution Plan is also under challenge in separate Appeal, there are no reason to set-aside the impugned order dated 11th June, 2021 at this stage. Appeal dismissed.
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