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2017 (9) TMI 1638 - HC - Insolvency and BankruptcyProceeding pending before the Debt Recovery Tribunal, Allahabad simultaneously with corporate insolvency resolution process - Held that - Entire proceeding before the DRT is completely without jurisdiction precisely in the backdrop that once the proceeding has already been commenced under IBC, 2016 and Moratorium under Section 14 of IBC, 2016 has already been issued and even in the said proceeding the parties have put their appearance before the insolvency professionals, then the impugned proceeding against the guarantors of principal debtor is per se bad. Once the liability is still in fluid situation and the same has not been crystallized, then in such situation two parallel/split proceedings in different jurisdiction should be avoided, if possible. This Court is of the considered opinion that in the aforementioned facts and circumstances once the sufficient safeguards are provided in the IBC, 2016 & the regulations framed thereunder to the bank, and even the liability has not been crystallized either against the principal debtor or guarantors/mortgagors at present, then the proceeding, which is pending before the Debt Recovery Tribunal, Allahabad cannot go on and the same is stayed till the finalisation of corporate insolvency resolution process or till the NCLT approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33, as the case may be.
Issues Involved:
1. Validity of the Debt Recovery Tribunal (DRT) proceedings against guarantors during the moratorium period under the Insolvency and Bankruptcy Code (IBC), 2016. 2. Jurisdiction and applicability of the IBC, 2016 over the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act, 1993). 3. Impact of the moratorium under Section 14 of the IBC, 2016 on the proceedings against guarantors. Detailed Analysis: 1. Validity of the Debt Recovery Tribunal (DRT) proceedings against guarantors during the moratorium period under the Insolvency and Bankruptcy Code (IBC), 2016: The petitioners, who are guarantors of M/s. L.M.L. Limited, challenged the DRT's order dated 6.7.2017, which stayed proceedings against the principal borrower (M/s. L.M.L. Limited) but continued proceedings against the guarantors. The petitioners argued that once the National Company Law Tribunal (NCLT) issued a moratorium under Section 14 of the IBC, 2016, the DRT should not proceed against the guarantors. The court noted that the entire proceeding before the DRT is still in a fluid stage and for the same cause of action, two split proceedings cannot go simultaneously before the DRT and NCLT. The court held that the DRT proceedings against the guarantors are invalid during the moratorium period. 2. Jurisdiction and applicability of the IBC, 2016 over the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act, 1993): The court observed that the object of the IBC, 2016 is categorical and as per provisions contained under Section 60(1), the Adjudicating Authority for insolvency resolution and liquidation for corporate persons, including corporate debtors and personal guarantors, shall be the NCLT. The court emphasized that the IBC, 2016 prevails over the RDDBFI Act, 1993, and the NCLT is already seized with the process of insolvency resolution against the company under the IBC, 2016. The court held that the DRT does not have jurisdiction to continue proceedings against the guarantors during the moratorium period. 3. Impact of the moratorium under Section 14 of the IBC, 2016 on the proceedings against guarantors: The court referred to the NCLT's order dated 30.5.2017, which imposed a moratorium on legal proceedings under Section 14 of the IBC, 2016. The court highlighted that the moratorium prohibits the institution or continuation of suits or proceedings against the corporate debtor, including execution of any judgment, decree, or order in any court of law, tribunal, arbitration panel, or other authority. The court held that the moratorium under Section 14 of the IBC, 2016, applies to proceedings against the guarantors as well, and the DRT proceedings cannot continue during this period. Conclusion: The court concluded that the proceedings before the DRT against the guarantors are stayed until the finalization of the corporate insolvency resolution process or until the NCLT approves the resolution plan under Section 31(1) or passes an order for liquidation of the corporate debtor under Section 33 of the IBC, 2016. The court disposed of both writ petitions with these directions.
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