2017 (7) TMI 1060 - Tri - Insolvency and Bankruptcy

Tribunal Upholds Interpretation of Moratorium Provision under Insolvency Law

The Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision regarding the interpretation of the Moratorium provision under the ... Corporate insolvency resolution process - appellant has grievance only relating to qualifying part of the impugned order as the Moratorium should take into its recourse on the subject matters and assets relating to its matters pending before the Debt Recovery Tribunal (DRT) and under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) - Held that:- We are not inclined to accept such submissions as Appellant-Corporate Applicant has sought for 'its' own insolvency resolution process that will include only the assets of the Corporate Debtor and not any assets, movable or immovable of a third party, like any director or other. In so far as 'guarantor' is concerned, we are not expressing any opinion, as they come within the meaning of 'Corporate Debtor individually', as distinct from principal debtor who has taken a loan. In the aforesaid background, if Ld. Adjudicating Authority, on careful reading of the provisions has come to the definite conclusion that on commencement of the insolvency process the 'Moratorium' shall be declared for prohibiting any action to recover or enforce any security interest created by the 'Corporate Debtor' in respect of 'its' property, no ground is made out to interfere with the said order. Appeal dismissed. Issues:1. Application under Section 10 of the Insolvency and Bankruptcy Code, 2016 for initiation of corporate insolvency resolution process.2. Interpretation of Section 14(1)(c) of the Code regarding the scope of Moratorium.3. Challenge to the impugned order dated 10th July, 2017.Analysis:1. The Appellant, a Corporate Applicant, filed an application under Section 10 of the Insolvency and Bankruptcy Code seeking the initiation of the corporate insolvency resolution process concerning the Corporate Debtor. The Adjudicating Authority admitted the application subject to certain qualifications, particularly regarding the Moratorium provision under the Code.2. The key issue revolved around the interpretation of Section 14(1)(c) of the Code, which outlines the scope of the Moratorium. The Adjudicating Authority emphasized that the Moratorium applies to actions related to the property owned by the Corporate Debtor as reflected in its balance sheet. The judgment clarified that properties not owned by the Corporate Debtor do not fall within the Moratorium's ambit, highlighting the significance of the term 'its' in determining the applicability of the Moratorium.3. The Appellant challenged the impugned order, contending that the Moratorium should extend to assets related to matters pending before the Debt Recovery Tribunal and under the SARFAESI Act. However, the Tribunal rejected this argument, stating that the Moratorium only applies to the assets of the Corporate Debtor and not those of third parties, such as directors or guarantors. The judgment upheld the Adjudicating Authority's decision regarding the declaration of Moratorium, emphasizing the specific application of the provision to the Corporate Debtor's owned property.4. Ultimately, the Tribunal found no merit in the appeal and dismissed it. The judgment affirmed the Adjudicating Authority's interpretation of the Moratorium provision under the Code, emphasizing that the Moratorium applies to actions concerning the property owned by the Corporate Debtor. The decision highlighted the importance of adhering to the statutory language and the specific scope of the Moratorium as outlined in the legislation.5. In conclusion, the judgment upheld the Adjudicating Authority's order admitting the application under Section 10 of the Code, subject to the qualifications regarding the Moratorium provision. The detailed analysis of the scope and application of the Moratorium provision provided clarity on the extent of protection afforded to the assets of the Corporate Debtor during the insolvency resolution process.