Tribunal halts complaints during insolvency resolution process, warns against breaching moratorium

The National Company Law Tribunal, Chennai, found the Respondent/Complainant guilty of violating the moratorium order under the Insolvency and Bankruptcy Code, 2016, by pursuing complaints under Section 138 of the Negotiable Instruments Act during the Corporate Insolvency Resolution process. The Tribunal stayed the proceedings in the complaints, directing the withdrawal of the complaints to avoid further consequences for breaching the moratorium. The Respondent was warned of potential action if the complaints were not promptly withdrawn, with the Tribunal deeming the actions as a misuse of the legal process and suppression of material facts.

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Issues: Violation of moratorium under the Insolvency and Bankruptcy Code, 2016; Proceedings under Section 138 of the Negotiable Instruments Act during CIR process.

The judgment by the National Company Law Tribunal, Chennai, dealt with the violation of the moratorium under the Insolvency and Bankruptcy Code, 2016, by the Respondent/Complainant. The Applicant's Counsel argued that the Respondent had initiated the Corporate Insolvency Resolution (CIR) process against the Corporate Debtor, M/S. Diamond Engineering Chennai Private Limited, and subsequently filed complaints under Section 138 of the Negotiable Instrument Act before the Metropolitan Magistrate Court in Mumbai. The order of moratorium issued by the Adjudicating Authority prohibited the institution of suits or continuation of pending suits against the Corporate Debtor, including the execution of any judgment. Despite this, the Operational Creditor proceeded with the complaints, which was deemed a violation of the moratorium order dated 06.06.2017.

The Counsel for the Respondent/Operational Creditor contended that filing proceedings under Section 138 of the Negotiable Instruments Act was permissible. However, any order passed by the Metropolitan Magistrate Court could impact the CIR process, especially if the Corporate Debtor had to pay the complainant due to compounding of the offense, resulting in preferential treatment. Consequently, the Tribunal stayed the proceedings in the complaints filed before the Metropolitan Magistrate Court in Mumbai, directing the Applicant's Counsel to provide a copy of the order to the court and instructing the Complainant to withdraw the complaints immediately to avoid further consequences for violating the moratorium.

The Tribunal found the Respondent/Complainant guilty of deliberately violating the moratorium order, considering it a misuse of the legal process and a suppression of material facts. The Respondent was aware of the proceedings initiated by the Adjudicating Authority and the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016. If the complaints were not withdrawn promptly, the Tribunal warned of taking action against the Respondent for violating the moratorium after providing an opportunity to be heard. Consequently, the Application filed in the matter was disposed of by the Tribunal.

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