TMI Blog2022 (12) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... would come under the prohibition of Section 14 of the Code of 2016 - The primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting it from its own management and from a corporate death by liquidation. The time-lines given therein have also been referred by the Apex Court as a measure to protect all its creditors and workers by seeing that the resolution process goes through as fast as possible. The reference of Section 85 of the Code of 2016 in Chapter II in Part III of the Code of 2016, has also been given to show the effect of admission of application, i.e., on the date of admission of the application, the moratorium period shall commence in respect of all the debts. The provision aforesaid does not refer to any other proceeding than in reference to the debts. Section 14 of the Code of 2016 is meant to refer those proceedings where even the corporate debtor would be a gainer, apart from third party, because third party would not fall under the definition of creditor . The bankruptcy proceedings remains generally to secure the institution by applying the measures given under the Code of 2016 and it is mainly in reference to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hit by the judgment of the Apex Court in the case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and others, (2020) 8 SCC 531. 3. It is submitted that the Corporate Insolvency Resolution Process (CIRP) should be under the strict vigil of the Adjudicatory Authority/NCLT and the delay in completion of CIRP should be proceeded with strict direction under Section 33 of the Code of 2016 by the Adjudicatory Authority or the appellate forum suo motu. After expiry of 330 days as stipulated under Section 12 of the Code of 2016, both the Interim Resolution Professional/Resolution Professional (IRP/RP) and the Committee of Creditors (CoC) become functus officio and, in such a situation, the Adjudicatory Authority or the appellate forum shall take action under Section 33 of the Code of 2016 sending the corporate debtor in liquidation, which is strictly not followed. It is added that forums under the Code of 2016 often embark upon deciding the issues which are not within their jurisdiction or enter into disputed questions of fact, which is not available in the summary adjudication. 4. Referring to the object of bringing the Code of 2016, it is submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Section 14 of the Code of 2016 other than to those matters which would not fall within the definition of the words referred to above. 7. The prayer is, accordingly, to consider the issue in the public interest so that the object and purpose of the Code of 2016 is served and at the same time Sections 12 and 14 of the Code of 2016 are given effect to for the purpose sought to be achieved therein. 8. To address the issues raised by the petitioner, it would be relevant to refer to the definitions of term creditor given under Section 3(10) of the Code of 2016, apart from the definitions of the terms claim , debt , default given under Sections 3(6), 3(11) and 3(12) of the Code of 2016, respectively. 3. Definitions.- ... (6) claim means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; (10) creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate debtor is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019. 14. Moratorium. (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 of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, as the case may be. 17. Management of affairs of corporate debtor by interim resolution professional.- (1) From the date of appointment of the interim resolution professional,- (a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional; (b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional; (c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional; (d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional. (2) The interim resolution professional vested with the management of the corporate debtor shall- (a) act and execute in the name and on behalf of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor-- (i) where a resolution plan has not been approved or rejected by the Adjudicating Authority; (ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. Explanation.-- For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 or any other law for the time being in force for the implementat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting of the committee of creditors unless such resolution applicant is also a financial creditor. (6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority. 10. The provisions aforesaid have been quoted to emphasize that the Interim Resolution Professional vested with the management of the affairs of the corporate debtor shall be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor. 11. Learned counsel for the petitioner has given illustration of a proceeding or a decree of the court in reference to non-monetary obligations and more specifically in those cases where the corporate debtor would be the gainer, apart from the third party. The specific illustration in reference to a decree for specific performance has been given, where the third party is benefited with the execution of the decree and the corporate debtor by receiving the money to their benefit. It is submitted that though such non-monetary obligation entered by the corporate debtor remains out of the purview of Section 14, rather the Code of 2016, many tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Limited, (2021) 6 SCC 258. Paragraphs (29) to (37) of the said judgment are quoted hereunder: 29. This then brings us to the object sought to be achieved by Section 14 IBC. The Report of the Insolvency Law Committee of February 2020 throws some light on Section 14 thereof read as follows: 8.2. The moratorium under Section 14 is intended to keep the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the processes envisaged during the insolvency resolution process and ensuring that the Company may continue as a going concern while the creditors take a view on resolution of default . Keeping the corporate debtor running as a going concern during the CIRP helps in achieving resolution as a going concern as well, which is likely to maximise value for all stakeholders. In other jurisdictions too, a moratorium may be put in place on the advent of formal insolvency proceedings, including liquidation and reorganisation proceedings. The UNCITRAL Guide notes that a moratorium is critical during reorganisation proceedings since it facilitates the continued operation of the business and allows the debtor a breat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. 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 again protect the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends. 31. It can thus be seen that regard being had to the object sought to be achieved by the IBC in imposing this moratorium, a quasi-criminal proceeding which would result in the assets of the corporate debtor being depleted as a result of having to pay compensation which can amount to twice the amount of the cheque that has bounced would directly impact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion or rejection of such application, as the case may be. (2) During the interim-moratorium period- (i) any legal action or legal proceeding pending in respect of any of his debts shall be deemed to have been stayed; and (ii) no creditor shall initiate any legal action or proceedings in respect of such debt. (3) The application under Section 80 shall be in such form and manner and accompanied by such fee, as may be prescribed. (4) The application under sub-section (3) shall contain the following information supported by an affidavit, namely- (a) a list of all debts owed by the debtor as on the date of the said application along with details relating to the amount of each debt, interest payable thereon and the names of the creditors to whom each debt is owed; (b) the interest payable on the debts and the rate thereof stipulated in the contract; (c) a list of security held in respect of any of the debts; (d) the financial information of the debtor and his immediate family up to two years prior to the date of the application; (e) the particulars of the debtor's personal details, as may be prescribed; (f) the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transaction is, as we have seen, a much wider expression than debt , and subsumes it. Also, the expression proceedings used by the legislature in Section 14(1)(a) is not trammelled by the word legal as a prefix that is contained in the moratorium provisions qua individuals and firms. Likewise, the provisions of Section 96 and Section 101 are moratorium provisions in Chapter III of Part III dealing with the insolvency resolution process of individuals and firms, the same expression, namely, debts is used as is used in Section 85. 35.1. Sections 96 and 101 read as follows: 96. Interim-moratorium.-(1) When an application is filed under Section 94 or Section 95- (a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and (b) during the interim-moratorium period- (i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. (2) Where the application has been made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ohibiting what is mentioned in clauses (a) to (d) thereof in respect of transactions entered into by the corporate debtor, inclusive of transactions relating to debts, as is contained in Sections 81, 85, 96 and 101. Also, Section 14(1)(d) is conspicuous by its absence in any of these sections. Thus, where individuals or firms are concerned, the recovery of any property by an owner or lessor, where such property is occupied by or in possession of the individual or firm can be recovered during the moratorium period, unlike the property of a corporate debtor. 36. For all these reasons, therefore, given the object and context of Section 14, the expression proceedings cannot be cut down by any rule of construction and must be given a fair meaning consonant with the object and context. It is conceded before us that criminal proceedings which are not directly related to transactions evidencing debt or liability of the corporate debtor would be outside the scope of this expression. 37. SBI v. V. Ramakrishnan, (2018) 17 SCC 394 looked at and contrasted Section 14 with Sections 96 and 101 from the point of view of a guarantor to a debt, and in this context, held : (SCC pp. 411- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n aforesaid, the Apex Court has given reference to a Report of the Insolvency Law Committee of February, 2020 and has been quoted in the paragraphs referred to above. 17. The primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting it from its own management and from a corporate death by liquidation. The time-lines given therein have also been referred by the Apex Court as a measure to protect all its creditors and workers by seeing that the resolution process goes through as fast as possible. The reference of Section 85 of the Code of 2016 in Chapter II in Part III of the Code of 2016, has also been given to show the effect of admission of application, i.e., on the date of admission of the application, the moratorium period shall commence in respect of all the debts. The provision aforesaid does not refer to any other proceeding than in reference to the debts. 18. The Apex Court had taken the language of Sections 14 and 85 of the Code of 2016 to be in contrast, as the language of Section 85 is only in reference to the debts, the moratorium contained in Section 14 is not subject specific. However, in paragraph 35.3 of the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where even a corporate debtor would be receiving the monies. Therefore, we do not find that any other interpretation is possible than given by us. In effect, a third party does not fall in the definition of creditor and would be treated differently for subsisting contractual obligation to make the payment to the corporate debtor, which may be pursuant to a decree for specific performance, as a party therein does not fall within the definition of creditor and thereby it will not come within the sweep of Section 14 of the Code. The view aforesaid is fortified by the judgment in the case of P.Mohanraj and others, supra, wherein it was held that a decree, where the corporate debtor stands to gain money by executing the decree, cannot be said to be a pecuniary attack on it, rather it suits the corporate debtor. 21. In the light of the aforesaid, we cannot accept any other interpretation of the provisions as prayed for by learned counsel for the petitioner other than what has been given by us. 22. The issue that now remains is about the maintainability of the public interest litigation. The writ petition has been filed showing it to be in public interest, but other than to refe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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