TaxTMI 
TaxTMI 
2022 (12) TMI 1200
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.... not only about the period of moratorium under Section 14 of the Code of 2016, but even the implication of the aforesaid provision in regard to the claims other than on the debt. 2. Learned counsel for the petitioner would submit that though Section 12 of the Code of 2016 stipulates time-lines for completion of the insolvency resolution process by the Adjudicatory Authority, it is not being strictly adhered to and the same is also hit by the judgment of the Apex Court in the case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and others, (2020) 8 SCC 531. 3. It is submitted that the Corporate Insolvency Resolution Process (CIRP) should be under the strict vigil of the Adjudicatory Authority/NCLT and the delay in completion of CIRP should be proceeded with strict direction under Section 33 of the Code of 2016 by the Adjudicatory Authority or the appellate forum suo motu. After expiry of 330 days as stipulated under Section 12 of the Code of 2016, both the Interim Resolution Professional/Resolution Professional (IRP/RP) and the Committee of Creditors (CoC) become functus officio and, in such a situation, the Adjudicatory Authority or the appellate ....
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....Code of 2016, moratorium prohibition is applied even to the contract or performance of the rights, where both the parties may gain and, accordingly, the interpretation of Section 14 of the Code of 2016 has been sought referring to the definitions of the terms "claim", "default", "debt" and "creditor" given under Section 3 of the Code of 2016. The reference of those definitions is to strengthen the argument in reference to the application of Section 14 of the Code of 2016 other than to those matters which would not fall within the definition of the words referred to above. 7. The prayer is, accordingly, to consider the issue in the public interest so that the object and purpose of the Code of 2016 is served and at the same time Sections 12 and 14 of the Code of 2016 are given effect to for the purpose sought to be achieved therein. 8. To address the issues raised by the petitioner, it would be relevant to refer to the definitions of term "creditor" given under Section 3(10) of the Code of 2016, apart from the definitions of the terms "claim", "debt", "default" given under Sections 3(6), 3(11) and 3(12) of the Code of 2016, respectively. "3. Definitions.- ... ....
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.... Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor: Provided also that where the insolvency resolution process of a corporate debtor is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019. 14. Moratorium. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:-- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or ....
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.... debtor. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be." 17. Management of affairs of corporate debtor by interim resolution professional.- (1) From the date of appointment of the interim resolution professional,- (a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional; (b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional; (c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the co....
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....s for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. Explanation 1.--For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. Explanation 2.-- For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor-- (i) where a resolution plan has not been approved or rejected by the Adjudicating Authority; (ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (iii) where a legal proceeding has been initiated in any court against the decision of the Adjudi....
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....n process shall be completed within the period specified in that subsection. Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018. (5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor. (6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority." 10. The provisions aforesaid have been quoted to emphasize that the Interim Resolution Professional vested with the management of the affairs of the corporate debtor shall be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor. 11. Learn....
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....tion professional vested with the management of the corporate debtor shall be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor and would not come within the sweep of Section 14 of the Code of 2016. It is giving specific reference to proceeding and decree of the specific performance, where both the parties would gain and, therefore, moratorium under Section 14 of the Code of 2016 should not affect such proceedings. 15. To address the aforesaid, we may refer to the judgment of the Apex Court in the case of P.Mohanraj and others v. Shah Brothers Ispat Private Limited, (2021) 6 SCC 258. Paragraphs (29) to (37) of the said judgment are quoted hereunder: 29. This then brings us to the object sought to be achieved by Section 14 IBC. The Report of the Insolvency Law Committee of February 2020 throws some light on Section 14 thereof read as follows: "8.2. The moratorium under Section 14 is intended to keep 'the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the processes envisaged during the insolvency resolution process and ....
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....te debtor out of financial sickness, thus benefitting all stakeholders, which would include workmen of the corporate debtor. Also, the judgment of this Court in Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 states the raison d'être for Section 14 in para 28 as follows : (SCC p. 55) "28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protect ....
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.... otherwise, when some of the other provisions as to moratorium are seen in the context of individuals and firms, the provisions of Section 14 become even clearer. Thus, in Part III of the IBC, which deals with insolvency resolution and bankruptcy for individuals and partnership firms, Section 81, which occurs in Chapter II thereof, entitled "Fresh Start Process", an interim moratorium is imposed thus: "81. Application for fresh start order.-(1) When an application is filed under Section 80 by a debtor, an interim-moratorium shall commence on the date of filing of said application in relation to all the debts and shall cease to have effect on the date of admission or rejection of such application, as the case may be. (2) During the interim-moratorium period- (i) any legal action or legal proceeding pending in respect of any of his debts shall be deemed to have been stayed; and (ii) no creditor shall initiate any legal action or proceedings in respect of such debt. (3) The application under Section 80 shall be in such form and manner and accompanied by such fee, as may be prescribed. (4) The application under sub-section (3) shall....
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....ication admitted under Section 84; (f) not travel outside India except with the permission of the adjudicating authority. (4) The moratorium ceases to have effect at the end of the period of one hundred and eighty days beginning with the date of admission unless the order admitting the application is revoked under sub-section (2) of Section 91." 35. When the language of Section 14 and Section 85 are contrasted, it becomes clear that though the language of Section 85 is only in respect of debts, the moratorium contained in Section 14 is not subject specific. The only light thrown on the subject is by the exception provision contained in Section 14(3)(a) which is that "transactions" are the subject-matter of Section 14(1). "Transaction" is, as we have seen, a much wider expression than "debt", and subsumes it. Also, the expression "proceedings" used by the legislature in Section 14(1)(a) is not trammelled by the word "legal" as a prefix that is contained in the moratorium provisions qua individuals and firms. Likewise, the provisions of Section 96 and Section 101 are moratorium provisions in Chapter III of Part III dealing with the insolvency resolution pro....
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.... plain language, include a Section 138 proceeding. This is for the reason that a Section 138 proceeding would be a legal proceeding "in respect of" a debt. "In respect of" is a phrase which is wide and includes anything done directly or indirectly - see Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 (at p. 709) and Giriraj Garg v. Coal India Ltd., (2019) 5 SCC 192 (at pp. 202-203). This, coupled with the fact that the section is not limited to "recovery" of any debt, would indicate that any legal proceeding even indirectly relatable to recovery of any debt would be covered. 35.3. When the language of these sections is juxtaposed against the language of Section 14, it is clear that the width of Section 14 is even greater, given that Section 14 declares a moratorium prohibiting what is mentioned in clauses (a) to (d) thereof in respect of transactions entered into by the corporate debtor, inclusive of transactions relating to debts, as is contained in Sections 81, 85, 96 and 101. Also, Section 14(1)(d) is conspicuous by its absence in any of these sections. Thus, where individuals or firms are concerned, the recovery of any property by an owner or le....
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.... relation to the debt and not the debtor." These observations, when viewed in context, are correct. However, this case is distinguishable in that the difference between these provisions and Section 14 was not examined qua moratorium provisions as a whole in relation to corporate debtors vis-à-vis individuals/firms. 16. The issue therein was in reference to the proceedings under Section 138 of the Negotiable Instruments Act, 1881, which was alleged to be outside the scope of Section 14 of the Code of 2016. The argument was not accepted by the Apex Court despite the proceeding not being exactly of civil nature, but having impact on the corporate debtor for a monetary obligation and it was held that such proceedings would come under the prohibition of Section 14 of the Code of 2016. To draw the conclusion aforesaid, the Apex Court has given reference to a Report of the Insolvency Law Committee of February, 2020 and has been quoted in the paragraphs referred to above. 17. The primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting it from its own management and from a corporate death by liquidation. The time-lin....
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....e Negotiable Instruments Act would fall within the prohibition given under Section 14 of the Code because it becomes a monetary obligation on the corporate debtor. 20. We, however, do not find that Section 14 of the Code of 2016 is meant to refer those proceedings where even the corporate debtor would be a gainer, apart from third party, because third party would not fall under the definition of "creditor". The bankruptcy proceedings remains generally to secure the institution by applying the measures given under the Code of 2016 and it is mainly in reference to the debt liability of the company and not to apply during the period of moratorium. It does not exclude application of other provisions to be given effect to and as the petitioner illustrated, in regard to the exclusion of the decree for specific performance where even a corporate debtor would be receiving the monies. Therefore, we do not find that any other interpretation is possible than given by us. In effect, a third party does not fall in the definition of "creditor" and would be treated differently for subsisting contractual obligation to make the payment to the corporate debtor, which may be pursuant to a decree f....