2017 (7) TMI 1068 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - whether a property(ies) which is/are not owned by a Corporate Debtor shall come within the ambits of the Moratorium? - Held that - The doctrine of Noscitur a Sociis is somewhat applicable that the associated words take their meaning from one another so that common sense meaning coupled together in their cognate sense be interpreted. As a result, its denotes the property owned by the Corporate Debtor. The property not owned by the Corporate Debtor do not fall within the ambits of the Moratorium. Even Section 10 is confined to the Book of the Accounts of the Corporate Debtor, due to the reason that Section 10(3) has specified that the Corporate Applicant shall furnish its Books of Accounts. This Bench has no legislative authority to expand the meaning of the term its even under the umbrella of Ejusdem generis . Moratorium shall prohibit the action against the properties reflected in the Balance Sheet of the Corporate Debtor. The Moratorium has no application on the properties beyond the ownership of the Corporate Debtor. As a result, the Order of the Hon ble Court directing the Court Commissioner to take over the possession shall not fall within the clutches of Moratorium. Even otherwise, the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (the SARFAESI Act) may be having different criteria for enforcement of recovery of outstanding debt, which is not the subject matter of this Bench. Before we part with it is necessary to clarify my humble view that The SARFAESI Act may come within the ambits of Moratorium if an action is to foreclose or to recover or to create any interest in respect of the property belonged to or owned by a Corporate Debtor, otherwise not. To conclude the Application under Section 10 of The Code is hereby Admitted subject to the exception as carved out supra. The consequential directions shall be that the provisions of Section 14 of The Code i.e. Moratorium shall come into operation. Next, the proposed name of Interim Resolution Professional i.e. (Page 4 name) is hereby approved. The IRP shall take appropriate action such as Public Announcement etc. so that the Insolvency Resolution Process shall be initiated expeditiously. He is directed to submit a Progress Report within one month s time from the commencement of Insolvency Resolution Process. Having Admitted the Application, hereby pronounce the commencement of the Corporate Insolvency Resolution Process effective from the date of this Order.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 10 of the Insolvency and Bankruptcy Code, 2016.
2. Validity of the Assignment Agreement and the transfer of debt.
3. The applicability of Moratorium under Section 14 of the Code.
4. Examination of the Corporate Debtor's financial statements and liabilities.
5. The impact of the Moratorium on properties not owned by the Corporate Debtor.

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 10 of the Insolvency and Bankruptcy Code, 2016:
The Corporate Debtor filed a petition on 5th June 2010 under Section 10 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate CIRP against itself. The primary objective was to commence the Moratorium process under Section 14 of the Code. The Tribunal emphasized the necessity to examine basic facts to ascertain whether the application deserved admission under Section 10 of the Code.

2. Validity of the Assignment Agreement and the transfer of debt:
The Corporate Debtor had raised a total debt from Dhanlaxmi Bank and Standard Chartered Bank. Dhanlaxmi Bank later assigned the debt to Phoenix ARC Pvt. Ltd. through an Assignment Agreement dated 28.03.2014. The Tribunal noted that the personal properties initially mortgaged to Dhanlaxmi Bank were subsequently mortgaged to Phoenix ARC Pvt. Ltd. The Tribunal acknowledged the execution of the Assignment Agreement and the transfer of debt.

3. The applicability of Moratorium under Section 14 of the Code:
The Tribunal discussed the implications of the Moratorium under Section 14, which prohibits actions against the corporate debtor's assets once CIRP is initiated. The Tribunal clarified that the Moratorium applies only to properties owned by the Corporate Debtor, as indicated by the term "its" in Section 14(1)(c). The Tribunal held that properties not owned by the Corporate Debtor do not fall within the ambit of the Moratorium.

4. Examination of the Corporate Debtor's financial statements and liabilities:
The Tribunal scrutinized the Corporate Debtor's financial statements, including the Balance Sheet and Profit/Loss Account as of 31st March 2017. It was noted that the Balance Sheet did not clearly reflect the impugned debt amount. The Tribunal found it necessary to appoint a professional to examine the Books of Accounts to ascertain the position of the debt. The Tribunal identified several reasons for admitting the application, including the need to streamline the debt position, safeguard the interests of Sundry Creditors, and examine the company's profitability.

5. The impact of the Moratorium on properties not owned by the Corporate Debtor:
The Tribunal highlighted that the Moratorium does not apply to properties not owned by the Corporate Debtor. The Tribunal referred to an Order by the Chief Metropolitan Magistrate appointing a Court Commissioner to take possession of certain flats, which were not owned by the Corporate Debtor. The Tribunal concluded that the Moratorium does not affect the enforcement of recovery actions against such properties.

Conclusion:
The Tribunal admitted the application under Section 10 of the Insolvency and Bankruptcy Code, 2016, subject to the exception that the Moratorium does not apply to properties not owned by the Corporate Debtor. The Tribunal approved the proposed Interim Resolution Professional and directed the initiation of the Insolvency Resolution Process, with a progress report to be submitted within one month.