TMI Blog2022 (2) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... suitors - The very purpose of separation of corporate insolvency under Part II of the IBC from individual insolvency under Part III must be understood. They are separate and distinct and aim to achieve different ends. The principles applied the incorporate insolvency cannot be applied to personal insolvency. It is essentially for this purpose that this Legislature has applied the moratorium under Section 14 to the corporate debtor as a whole and moratorium under Section 96 is restictively applied only to the debt. The object and purpose of a moratorium is to invite resolution applicants for revival of corporate debtors under Part II. Under Part III however the purpose of moratorium is to facilitate repayment/resolution of the debt to all categories of debtors. The object and purpose of the Master Circular for willful default is dissemination credit information of the willful defaulter so that other lenders are cautioned and do not lend any further money. It is also aim at preventing further fraud and loss of public money. A willful defaulter proceeding is not for recovery of debt. The repayment of debt will not ipso facto extinguish the default. This has to be assist and applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder 18th October, 2021, in view of the moratorium under Section 96 of the 2016 Act. Reliance is placed upon a decision dated 4.3.2021 of Co-ordinate Bench in Ayan Mallick Anr. vs. SBI being WPO No. 23 of 2021, particularly in paragraph 22 thereof. It is further argued that if the order of the Review Committee is at large or given effect to, it would defeat the object and purpose of the IBC proceedings against him. The efforts of the writ petitioner to square off the debt would stand seriously hampered and this would be counter productive for the bank as well. Mr. Om Narayan Rai, learned Counsel appearing for the State Bank of India submits that firstly, proceedings under wilful defaulter guidelines are not those that are covered under the moratorium under Section 96 of the Act. It is submitted that moratorium in Sectioin 96 operates only against the debt of a respondent co-obligant. In Ayan Mallick decision (supra) the scope of a moratorium under Section 14 of the IBC was being considered. A moratorium under Section 14 applies to a corporate debtor , as opposed to a moratorium under Section 96 which is against the debt . Reliance is placed on a decision of the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (3) The Provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the adjudicating authority approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the moratorium referred to in Section 14 can have no manner of application to personal guarantors of a corporate debtor. 26. We are also of the opinion that Sections 96 and 101, when contrasted with Section 14, would show that Section 14 cannot possibly apply to a personal guarantor. When an application is filed under Part III, an interim-moratorium or a moratorium is applicable in respect of any debt due. (Emphasis added) First and foremost, this is a separate moratorium, applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part III. Secondly, the protection of the moratorium under these sections is far greater than that of Section 14 in that pending legal proceedings in respect of the debt and not the debtor are stayed. The difference in language between Sections 14 and 101 is for a reason. 26.1. Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I and existing law in Article 366(10) show that the laws in force include laws passed or made by a legislature before the commencement of the Constitution and not repealed, notwithstanding that any such law may not be in operation at all. Thus, the definition of the expression laws in force in Article 13(3)( b ) and Article 372(3) Explanation I and the definition of the expression existing law in Article 366(10) demolish the argument of the State of Kerala that a law has not been made for the purposes of Article 254, unless it is enforced. The expression existing law finds place in Article 254. In Edward Mills Co. Ltd. v. State of Ajmer [ Edward Mills Co. Ltd. v. State of Ajmer , AIR 1955 SC 25] , this Court has held that there is no difference between an existing law and a law in force . 81 . Applying the tests enumerated hereinabove, we hold that the Kerala Chitties Act, 1975 became void on the making of the Chit Funds Act, 1982 on 19-8-1982, (when it received the assent of the President and got published in the Official Gazette) as the Central 1982 Act intended to cover the entire field with regard to the conduct of the chits and further that the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings under Section 95 are initiated. The argument of Mr. Rajarshi Dutta that the continuation of the wilful defaulter proceedings would seriously hamper and impede his client s ability to make good repay or come up with; a scheme to satisfy creditors is fallacious. Such stay would also amount to permitting a wrong doer to commit a further wrongs for the purpose of remedying an existing wrong. All lenders are required to be put on notice of the willful default who to prevent further erosion of public finances. The observation in Para 22 do not apply in this instant case as have not been applied in the conclusion of the said decision. It appears to this Court that the Ramakrishnan decision has not been placed before the Coordinate Bench in the Ayan Mallick case (supra). As already stated earlier any moratorium under the IBC cannot permit a wrong doer to continue to such doing. This Court in the Patni decision (supra) has addressed the right/responsibility of the bank to take criminal action against a defaulter borrower who has been identified as a defaulting borrower. The purpose behind the said clause 4.3 of the wilful defaulter guidelines, as dealt with in the Patni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter Circular need not be strictly construed. As we have held, the Master Circular has to be construed not literally but in its context and the words used in the definition of wilful defaulter in the Master Circular have to draw their meaning from the context in which the Master Circular has been issued. The same is more of a responsibility and obligation than a right. Recovery proceedings or proceedings under Section 96 of the IBC, 2016, or the borrower s success therein, would not absolve the borrower who has been found to be a wilful defaulter. The willful defaulter proceedings only aims at dissemination of information. The bank s responsibility to institute criminal proceedings would also be interfered with if the arguments of the petitioners are accepted. For the reasons stated hereinabove, this Court is not inclined to entertain the writ petition. WPO 1548 of 2021 shall stand dismissed. There shall however be no order as to costs. Before parting with the case, this Court wishes to record appreciation for the spirited efforts and skillful arguments of Mr. Rajarshi Dutta, Mr. V. V. V. Sastry and Mr. Tridib Bose, learned Advocates for the petitioner. - - Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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