TMI Blog2022 (3) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of the moratorium under Section 14, the IBC makes a provision to protect the interests of a decree holder by recognizing it as a creditor. The interest recognized is that in the decree and not in the dispute that leads to the passing of the decree. This is apparent from the fact that decree holders as a class of creditors are kept separate from financial creditors and operational creditors - The inescapable conclusion from the aforesaid discussion is, that the IBC treats decree holders as a separate class, recognized by virtue of the decree held. The IBC does not provide for any malleability or overlap of classes of creditors to enable decree holders to be classified as financial or operational creditors. Once a decree holder is recognized as a creditor, all provisions of the IBC that apply to creditors, including the waterfall provisions are applicable in all their force. The rights like each and every other creditor are subject to the overall objective of maximization of assets of the corporate debtor for the benefit of all stake holders in line with the commercial wisdom of the Committee of Creditors - Once admitted as a creditor, the efforts must be to preserve an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner states that the petitioner is a shareholder of public listed companies, who are either creditors and/or corporate debtors in terms Insolvency and Bankruptcy Code, 2016 ( IBC ). He is therefore interested in the issues raised in the present petition, which deal with the manner in which claims under corporate insolvency resolution process are to be treated. He states that the issues raised, also effect the general public, as they would be germane to almost all corporate insolvency resolutions under the IBC. It is further stated that there is no authoritative pronouncement of the Hon'ble Supreme Court or Hon'ble High Court on the questions raised. [3] Principally, the issues raised in the present petition deal with the treatment of decree holders who hold decrees against a Corporate Debtor under the insolvency resolution process. As such, the issue is one of classification. The Petitioner states that the IBC and / or the Regulations framed thereunder, do not prescribe the class of creditors to which the term decree holder belongs, and therefore there exists a need to iron out the creases by this Hon ble Court. It is suggested that without such prescription i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern.(See Arcelor Mittal [Arcelor Mittal (India)(P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3). 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being mere recovery legislation for creditors. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Civil Procedure Code, 1908. Suffice it to say, that the provisions contained in Order 21 provides for the manner of execution of decrees in various situations. The said provisions also provide for the rights available to judgement debtors, claimant objectors, third parties etc., to ensure that all stake holders are protected. The provisions of the CPC, therefore subjects the rights of a decree-holder to checks and balances that an executing court must follow before the fruits of such decree can be exercised. Given the same, the rights of a decree-holder, subject to execution in accordance with law, remain inchoate in the context of the IBC. This is principally because, the IBC, by express mandate of the moratorium envisaged by Section 14(1), puts a fetter on the execution of the decree itself. [8] Section 14 provides as under : 14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney, moveable property, immoveable property, or of any other nature, remains on the books of the corporate debtor. The moratorium envisaged by Section l4(1)(b) therefore, expressly bars transfer, encumbering, alienation or disposal of such assets. Seen in the context of the Statement of Objects and Reasons and the Preamble of the IBC, this provision ensures that its stated purpose of achieving preservation and maximization of the assets of a corporate debtor is not defeated. In fact, to ensure that such assets remain protected, even whilst in the hands of an Interim Resolution Professional or a Resolution Professional, as the case may be, Section 28(1)(d), creates a further fetter and provides that a resolution professional, during the corporate insolvency process, shall not record any change in ownership interest of the corporate debtor , without prior approval of the Committee of Creditors. [10] A reading of the aforesaid provisions makes it clear that, in effect, an unexecuted decree, in the hands of a decree holder under the IBC regime, cannot be executed. At best, a decree signifies a claim that has been judicially determined and in that sense is an admitted claim agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rees for completing sale of property where part payments have been made. In our opinion, this situation has been provided for by the IBC. Where the decree is not amenable to precise valuation, the resolution professional must follow the procedure for estimation of its value provided in the Regulation 14 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, ( CIRP Regulations ). For instance, in cases involving part payments for sale of property, the payments already made by the decree holder creditor would be a reasonable guide for estimation of the claims of a decree holder. Where specific performance is of a contract, the resolution professional may estimate on the basis of past business records of the corporate debtor to estimate its claims. The effort of the resolution professional in such cases has to be guided by Regulation 14 of the CIRP Regulations and the overall objective of the IBC to maximise assets of the corporate debtor. [14] The powers of a resolution professional are only to vet and verify the decree. Even the executing court, that executes the decree after adjudication of objections, cannot look behind the decree. That being so, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the role of Committee of Creditors is akin to that of a protagonist, giving finality to the process (subject, of course, to approval by the adjudicating authority), who takes the key decisions in its commercial wisdom and also takes the consequences thereof. As noticed, the process is aimed at bringing the corporate debtor back on its feet and it is acknowledged that appropriate disposition of a defaulting corporate debtor and the choice of solution, to keep the corporate debtor as a going concern or to liquidate it, is to be made by the financial creditors, who could assess the viability and may take decisions in modification of the terms of the existing liabilities. In other words, the decision as to whether the corporate debtor be resurrected or not, by acceptance of a particular resolution plan, is essentially a business decision and hence, is left to the committee consisting of the financial creditors, that is, the Committee of Creditors but, with the requirement that the resolution plan, for its approval, ought to muster not less than 66% votes of the voting share of the financial creditors. [17] Membership of the Committee of Creditors has to be seen in context of its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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