Tribunal Cancels Encumbrance During CIRP Moratorium

The National Company Law Tribunal, Chennai, ruled on a case involving a delay in filing a reply affecting the Corporate Insolvency Resolution Process (CIRP) and the creation of an encumbrance during the moratorium period. The Tribunal emphasized that no encumbrance can be created over the property during the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016. Consequently, the Tribunal cancelled the encumbrance created by the Respondent and directed appropriate action to be taken by the Sub Registrar. The Application was closed based on the cancellation of the encumbrance and the legal provisions governing the CIRP and moratorium under the IBC, 2016.

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Issues: Delay in filing reply affecting Corporate Insolvency Resolution Process (CIRP), Creation of encumbrance during moratorium period, Cancellation of encumbrance by Tribunal.

The judgment delivered by the National Company Law Tribunal, Chennai, addressed the issue of delay in filing a reply impacting the Corporate Insolvency Resolution Process (CIRP). The Respondent was granted time to file a reply, but a significant delay occurred, hindering the CIRP, which is a time-bound process. Due to the delay, the Tribunal proceeded with the Application's disposal without considering the Respondent's submissions. The Tribunal highlighted that during the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), no encumbrance or charge can be created over the property by any entity, including the Respondent, except as per the provisions of the IBC, even for dues payable by the Corporate Debtor.

The judgment extensively cited Section 14 of the IBC, 2016, which declares a moratorium on various actions, including transferring, encumbering, or disposing of the Corporate Debtor's assets during the insolvency commencement date. It emphasized that no encumbrance can be created over the property during the moratorium period. Additionally, the judgment referred to Section 238 of the IBC, 2016, stating that the provisions of the IBC shall prevail over any inconsistent provisions in other laws. Therefore, considering the provisions of Section 14 of the IBC and Section 238 of the IBC, the Tribunal concluded that the Respondent could not deal with the assets of the Corporate Debtor during the CIRP.

Consequently, the Tribunal ruled that the encumbrance created by the Respondent through an attachment was cancelled. The Tribunal directed the order's copy to be provided to the relevant Sub Registrar, where the encumbrance was registered, for necessary action. The judgment concluded by closing the Application in light of the cancellation of the encumbrance and the legal provisions governing the CIRP and moratorium under the IBC, 2016.

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