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TMI Blog2020 (10) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... Code, 2016 (in short IB Code, 2016) read with rule 11, 13 & 32 of the National Company Law Tribunal (Adjudicating Authority) Rules, 2016, inter-alia seeking to direct the RP to restore the original situation where unit I & II are financed by the Applicant herein and the same being repaid due to the availability of the Funds and those units not being under cash crunch continued to be repaid as repayment does not amount to "Recovery". 2. The brief facts of the case are as follows: a) That this Adjudicating Authority admitted the Company Application filed under section 7 of the IB Code, 2016 vide its order dated 05.09.2019 in CP (IB) No. 420/7/HDB/2018 for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest and principal payment to Unit I and II lenders even after the commencement of CIRP of the Corporate Debtor. However, the same was denied by the R2, since the cash flows of the Operational Units in the above stated three phases in project plant were preliminary charged/secured to the few Financial Creditors of the Corporate Debtor including this Applicant. e) That R2 herein, Resolution Professional contented that the Corporate Debtor is under moratorium and all the payments on account of interest or debt repayment are on hold. He further stated with regard to the interest servicing to Unit I & II lenders that it is not sustainable as any disbursements on account of accrued interest or towards principal would amount to a 'recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stood the difference between the terms 'Repayment' and 'Recovery' under the provisions of moratorium and instead had expanded and merged the term "recovery" into the term "repayment" of an existing debt. In the current matter there are units which are feasible and there are units which are not feasible. The Units I & II of the Corporate Debtor are under the operation and there is cash flow enabling the unit to service the debt or enables them to repay. j) That the Resolution Professional, R2 herein is showing up the revenues of the Unit I & II into fixed deposit which is up the tune of Rs. 100 Crores with the sole intention of surplus cash which will be enjoyed by the prospective successful resolution Applicant. k) That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the satisfaction of its debt during the period of moratorium. As such, the Application filed by the Applicant deserves to be dismissed for this reason alone since such payment would be in contravention of the moratorium imposed under the admission order. d. That if the RP/R2 herein is directed to make any payments as been sought by the Applicant, the same would amount to preferential treatment in favour of the applicant, at the prejudice of the remaining creditors of the Corporate Debtor. Such preferential treatment is squarely prohibited under the IB Code, 2016. e. That the legality of making interim payment to a class of creditors during the pendency of CIRP was considered by the Hon'ble Supreme Court in the case of Chitra Sharm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor to repay the debts of one of the many financial creditors in preference to other financial creditors after initiation of CIRP and invocation of moratorium u/s 14 of the Code? 6. The objectives of the Code are enshrined in its preamble which incorporates maximisation of value of the assets of the Corporate Debtor and balancing the interests of all stakeholders as two of its avowed objectives. 7. As soon as the CIRP is initiated, the Corporate Debtor is subjected to a Moratorium U/s 14 whereby the following actions are mandatorily prohibited: "(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gether during the insolvency resolution process so that the corporate debtor may continue as a going concern while the creditors take a view on the resolution of default and cannot resort to individual enforcement action which may frustrate the objectives of the CIRP and the Code. 9. It is pertinent to emphasize here that Clause (b) of Section 14(1) clearly and categorically prohibits any transfer or alienation of assets, legal rights or beneficial interest therein by the Corporate Debtor to any person. Cash in hand and in bank accounts are liquid assets of the Corporate Debtor. Therefore any preferential payment to any creditor during the period of CIRP will squarely fall within this prohibition. 10. As has already been decided by Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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