2023 (3) TMI 1175 - AT - Insolvency and Bankruptcy

Tribunal Clarifies Moratorium Scope under I&B Code, Emphasizes Project-Specific 'Reverse CIRP'

The Tribunal clarified that the moratorium under Section 14 of the I & B Code, 2016 applies to the entire Corporate Debtor, protecting all assets and ... Effect of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - should be limited to the same project i.e Winter Hills only or not - seeking appropriate direction to the Ld. IRP/ Respondent to effect the moratorium limited to the real estate project Winter Hills only and not to enlarge the effect of the moratorium against the other assets of the Corporate Debtor or against the entire company of the Corporate Debtor - as per applicant role of IRP/ Respondent should be confined only with respect to project Winter Hills-77 instead of whole company of the Corporate Debtor. HELD THAT:- The intent of Section 7 of the I & Code, 2016 is pretty clear and the role of Adjudicating Authority has been clearly defined to examine the existence of debt and subsequent default on payment on due date by the Corporate Debtor and also meeting the threshold criteria. Admittedly, in the present case no error was found in the order of the Appellate Tribunal contained in order dated 04.02.2020, thereby there was no case of the Appellant therein to set aside the order dated 20.08.2019 - This Appellate Tribunal, taking the support of the ratio as laid down by the Hon’ble Supreme Court of India in the case of COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA & OTHERS [2019 (11) TMI 731 - SUPREME COURT], regarding economic experimentation, took on challenge for finding new dynamic solution and laid down for the first time the concept of ‘Reverse CIRP’ along with other aspect related to the case in Para Nos. 13, 15, 20, 21, 25, 26, 29, 30 & 31 of (04.02.2020) as discussed in preceding paragraphs. Similarly, Section 14 of the I & B Code, 2016, is explicit and without any ambiguity which prescribes that once CIRP has been admitted, the entire Corporate Debtor is placed under management of the IRP who shall conduct day to day affairs of the Corporate Debtor and moratorium automatically find its place. The balance has been placed on the rights and obligations of various stakeholder during this calm period as per Section 14 of the I & B Code, 2016 and this has been primarily done to protect the assets of the Corporate Debtor so that by suitable Resolution Plan of Resolution Applicant the Corporate Debtor can be continued on going concern basis and not push the Corporate Debtor towards Insolvency/ Liquidation. The intent of order of this Appellate Tribunal dated 04.02.2020, therefore, seems to restrict the scope of the Reverse CIRP to only project Winter Hills-77, whose two allottees, namely, Rachna Singh and Ajay Singh, filed an application asking for the CIRP of the Corporate Debtor and who not only got the possession of their flats but also received sale deeds and were able to get these registered in their favour. Thus, technically the grievances of the Original Applicants/ Movers of Section 7 application have been satisfied. This Appellate Tribunal consciously notes that Section 14 of the I & B Code, 2016 recognise moratorium of the Corporate Debtor implying that under such moratorium all assets and liabilities are covered by provision of moratorium and protected from any detrimental action against the Corporate Debtor by way of any fresh/continuation of any suit or litigation etc., to protect the Corporate Debtor’ in the difficult times and give temporary respite to overcome difficulties and revive itself by other means including by the ‘Successful Resolution Plan’ of third party - It is pertinent to note that the concept of Reverse CIRP was also allowed to the specific project and without touching or commenting on other projects and assets of the ‘Corporate Debtor’ and without any specific direction/observation regarding continuation of moratorium on other projects for the Corporate Debtor. Thus, it becomes evident that the order is confined to only Winter Hills-77 and not to other projects of the Corporate Debtor and consequently and logically the moratorium in the present case can deemed to have been confined to only project Winter Hills-77 and not to other projects of Corporate Debtor. This clarification is being given looking to peculiar and extraordinary circumstance of the case and detailed rational along with elaborate directions contained in its order dated 04.02.2020. This Appellate Tribunal also takes into account an important fact that in its earlier order dated 04.02.2020, for the first time, the concept of Reverse CIRP was introduced and as such this is evolving process needing such clarification. This Appellate Tribunal will like to amplify that above clarification is on specific request of the Appellant in present appeal and cannot be treated as general guidance or interpretation regarding moratorium on the Corporate Debtor - moratorium on Corporate Debtor as a whole is a normal, basic and fundamental law as laid down in Section 14 of the I & B Code, 2016 and need to be read accordingly. Application disposed off. Issues Involved:1. Scope of the moratorium under Section 14 of the I & B Code, 2016.2. Applicability of the 'Reverse CIRP' to other projects of the Corporate Debtor.3. Role and responsibilities of the IRP in the context of 'Reverse CIRP'.Summary:Scope of the Moratorium under Section 14 of the I & B Code, 2016:The Appellant sought clarification that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, should be limited to the 'Winter Hills-77' project only and not extend to other assets or projects of the Corporate Debtor, Umang Realtech Pvt. Ltd. The IRP/Respondent argued that the moratorium applies to all assets and liabilities of the Corporate Debtor as a whole, not just specific projects. The Tribunal concluded that the moratorium, as per Section 14, is intended to cover the entire Corporate Debtor to protect its assets and facilitate its resolution.Applicability of the 'Reverse CIRP' to Other Projects:The Appellant contended that the 'Reverse CIRP' mechanism, as introduced in the Tribunal's order dated 04.02.2020, should be confined to the 'Winter Hills-77' project and not affect other projects like 'Monsoon Breeze-II.' The Tribunal affirmed that the 'Reverse CIRP' is project-specific and does not extend to other projects of the Corporate Debtor. This was to ensure that the resolution process is confined to the particular project for which it was initiated, without impacting other projects.Role and Responsibilities of the IRP in the Context of 'Reverse CIRP':The Appellant argued that the IRP's role should be limited to overseeing the completion of the 'Winter Hills-77' project and not extend to managing the entire Corporate Debtor. The IRP/Respondent maintained that his responsibilities include managing all assets and liabilities of the Corporate Debtor as per the I & B Code, 2016. The Tribunal clarified that the IRP's role in the 'Reverse CIRP' is primarily to supervise the completion of the specific project ('Winter Hills-77') and ensure compliance with the Tribunal's orders. The IRP is not to take over the entire management of the Corporate Debtor unless the 'Reverse CIRP' fails.Conclusion:The Tribunal disposed of the application, clarifying that the 'Reverse CIRP' is limited to the 'Winter Hills-77' project and the moratorium under Section 14 should be deemed confined to this project only. This clarification was given considering the unique circumstances of the case and the evolving nature of the 'Reverse CIRP' concept. The Tribunal emphasized that this clarification should not be treated as a general interpretation of the moratorium provisions under the I & B Code, 2016.