Tribunal rules payment during insolvency violated moratorium, directs refund

The Tribunal held that the moratorium under section 14 of the Insolvency and Bankruptcy Code was in effect, ruling that a payment made by R1 to R2 from the Corporate Debtor's account during the insolvency process violated the moratorium provisions. R1 was directed to refund the sum to the Corporate Debtor's account. The Tribunal partially granted the relief sought by the Applicant, emphasizing that certain prayers were premature for consideration at that stage, leaving the possibility for further directions in the future.

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Issues:
Application under section 14 of the Insolvency and Bankruptcy Code, 2016 for relief regarding refund and adherence to provisions.

Analysis:
The Applicant, as the Resolution Professional of the Corporate Debtor, filed an application seeking various reliefs under section 14 of the Insolvency and Bankruptcy Code, 2016. The Applicant raised concerns regarding a payment directed by R1 to R2 from the Corporate Debtor's account towards State Tax dues during the Corporate Insolvency Resolution Process (CIRP) period. The Applicant contended that this action violated the moratorium provisions under the Code, specifically section 14(1)(a). The Applicant highlighted that the CIRP was extended by the Tribunal and is still ongoing, as per the directions of the NCLAT. The Applicant also emphasized the overriding effect of the Code over other laws, citing relevant judicial pronouncements to support the argument. Furthermore, the Applicant pointed out that the action of R1 was against the waterfall mechanism provided under section 53 of the Code.

The Tribunal, after considering the submissions and relevant legal provisions, held that the moratorium under section 14 was in operation, despite the completion of the CIRP period and the stay on the liquidation order. The Tribunal found that the action of R1 directing the payment was in violation of the moratorium provisions of the Code. Consequently, the Tribunal directed R1 to refund the sum to the Corporate Debtor's account maintained with R2. However, the Tribunal noted that certain prayers in the application were in the nature of advance ruling and could not be granted at the current stage. The Tribunal allowed the application partially and disposed of the matter, granting relief in terms of the refund but leaving room for further directions if needed in the future.

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