Moratorium u/s 14 of IBC imposed legal ‘Embargo’ not only on Financial Creditors but on any other person for Sale of Assets in CIRP: NCLT [Read Order]

The NCLT has held that moratorium under section 14 of IBC Imposed Legal 'Embargo' not only on financial creditors but on any other person for sale of assets in CIRP
Moratorium - NCLT - IBC - CIRP - Sale of Assets - Embargo - TAXSCAN

The Hyderabad bench of the National Company Law Tribunal ( NCLT ) has held that a Moratorium under section 14 of the Insolvency Bankruptcy Code ( IBC ),2016 imposed a legal ‘Embargo’ not only on financial creditors but on any other person for the sale of assets in Corporate Insolvency Resolution Process( CIRP ).

The Corporate Debtor is engaged in the business of cane crushing and production of sugar and associated by-products. The Corporate Debtor purchases sugarcane from farmers. The Corporate Debtor committed default in paying the price for the sugarcane supplied by farmers to the units of the corporate debtor. Consequently, respondents no.2 and 3 initiated proceedings under Andhra Pradesh Revenue Recovery Act, 1864, to sell the immovable property to pay the amounts due to farmers.

It was submitted that the moment on initiation of the corporate insolvency resolution process takes place, a moratorium is announced by the adjudicating authority vide Sections 13 and 14 of the Code, by which the institution of suits and pending proceedings etc. cannot proceed. This continues until the approval of a resolution plan under Section 31 of the said Code. In the interim, an interim resolution professional is appointed under Section 16 to manage the affairs of corporate debtors under Section 17.

It was observed that merely because, the impugned sale is for realisation of the arears of the amount due and payable by the corporate debtor to the suppliers of sugarcane, who are farmers and were reportedly agitating, by resorting to Dharanas and Rasta Roko’s, which allegedly resulted in Law & Order problem, the same cannot be the justification, for bypassing/ violating the order of moratorium under Section 14 of the I&B Code.

“Needless to reiterate that, moratorium under section 14 of I&B Code operates as a legal ‘embargo’ on sale or alienation of the assets of the corporate debtor in terms of section 14 of the I&B Code during the CIRP of the corporate debtor not only on the financial creditor but also on any person.”, Two-member bench comprising Dr Venkata Ramakrishna Badarinath Nandula, Member ( Judicial ) and Sh Charan Singh, Member ( Technical ) held.

It was viewed that in the case of Indian Overseas Bank V/s. Dinakar T. Venkatsubramaniam Resolution Professional for Ambtek Auto Ltd.’ held that, “… Once Moratorium has been declared, it is not open to any person including ‘Financial Creditor’ and the Appellant Bank to recover any amount from the account of the ‘Corporate Debtor’, nor it can appropriate any amount towards its own dues”.

The 1st respondent, despite being repeatedly informed and even persuaded by the applicant not to proceed further with the impugned sale process, as the moratorium ordered by this Tribunal is in force, went ahead, completed the sale and even distributed a sizeable part of the sale proceeds not only to the farmers but also to various ‘others’ even though none of them are even entitled to be paid in the manner in which the 1st respondent has done, and thus, not only made the statutory process under IB Code a ‘mockery; but also jeopardized the entire ‘due distribution of the assets of the corporate debtor’ among the stakeholder as envisaged under I&B Code.

The CESTAT held that the impugned sale of the property of the corporate debtor, which is undergoing CIRP, under the public auction held under the provisions of the AP Revenue Recovery Act, is unsustainable, unenforceable besides null and void, hence the same is liable to be annulled.

Subscribe Taxscan Premium to view the Judgment

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates