Tribunal Upholds Insolvency Code Over RBI Circulars, Orders Cooperation and Asset Management

The Tribunal granted the Resolution Professional's application under Section 19(2) of the Insolvency and Bankruptcy Code, directing the Financial Creditor, State Bank of India, to cooperate, manage the corporate debtor, defreeze assets, and refrain from violating the moratorium. The Tribunal rejected the argument that RBI circulars override statutory provisions, emphasizing the supremacy of the Code. It found the Financial Creditor's actions during the moratorium period to be in violation of the law, imposing costs and ordering the reversal of debits. The judgment reinforced adherence to statutory provisions and cooperation in insolvency proceedings.

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Issues Involved:
Application under Section 19(2) of Insolvency and Bankruptcy Code 2016 for cooperation from Financial Creditor, permission to manage corporate debtor, defreezing of assets, and initiation of insolvency proceedings against financial creditor. Dispute over cooperation from State Bank of India leading to non-performing assets (NPA) status. Interpretation of Section 14(3) in relation to circulars issued by Reserve Bank of India. Violation of moratorium and statutory provisions by financial creditor.

Analysis:

1. Application under Section 19(2) of Insolvency and Bankruptcy Code:
The Resolution Professional filed an application seeking cooperation from the Financial Creditor, State Bank of India, under Section 19(2) of the Insolvency and Bankruptcy Code 2016. The application also requested permission to manage the affairs of the corporate debtor and defreezing of assets. Allegations were made against the Financial Creditor for not cooperating and causing the corporate debtor's account to become Non Performing Assets (NPA).

2. Interpretation of Section 14(3) in relation to RBI circulars:
The Financial Creditor, State Bank of India, argued that the circulars issued by the Reserve Bank of India (RBI) regarding NPA declaration and bank guarantees override the provisions of Section 14 of the Code. However, the Tribunal found this argument unsustainable, emphasizing that the provisions of the Code prevail over any circulars or subordinate legislation. The Tribunal highlighted the non obstante clause in Section 238 of the Code, stating that it overrides any inconsistent provisions in other laws.

3. Violation of moratorium and statutory provisions:
The Tribunal found that the actions of the Financial Creditor, including debiting the corporate debtor's account and enforcing security interests during the moratorium period, violated Section 14(1)(c) and the order of moratorium. Consequently, a cost was imposed on the Financial Creditor for the statutory violation. The Resolution Professional's application was allowed, directing the Financial Creditor to reverse the debits and restore the account, along with defreezing the account and bank guarantees.

In conclusion, the judgment addressed the issues of cooperation from the Financial Creditor, interpretation of statutory provisions in relation to RBI circulars, and violations during the moratorium period. The Tribunal upheld the Code's provisions, emphasizing the non obstante clause and imposing costs for statutory violations by the Financial Creditor.

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