2019 (6) TMI 1395 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Amount outstanding towards the Corporate Debtor - existence of dispute between the parties or not - HELD THAT - The apprehension of the Applicant can be taken note of till the time either the Application is admitted or rejected, the assets and the accounts of the Company need to be maintained on date except withdrawal of the legitimate expenses required for carrying on the day-to-day expenses. Therefore, this Authority in exercise of the powers conferred under Rule 11 of the NCLT Rules, 2016, restrains the Corporate Debtor and its Directors from alienating, encumbering or creating any third party interest on the assets of the 1st Respondent Company till further orders. Matter adjourned.

Summary

Issues:
1. Outstanding amount towards the Corporate Debtor
2. Existence of dispute between the parties
3. Application under Section 9 of IBC
4. Misc. Application under Section 60(5)(c) of IBC, 2016
5. Maintainability of the application under Section 60(5)(c) before admission of the petition
6. Authority to restrain the Corporate Debtor from alienating assets

Analysis:

1. The petitioner claimed an outstanding amount of ?7,64,54,285.20 towards the Corporate Debtor as of a specific date. The petitioner initiated the application under Section 9 of the Insolvency and Bankruptcy Code (IBC) after fulfilling the requirements of Section 8 by serving notice on the Corporate Debtor. The respondent's counsel argued the existence of a dispute between the parties and requested time to file a reply. The tribunal granted an extension for the reply and directed the petitioner's counsel to file a rejoinder within a week.

2. The petitioner filed a Miscellaneous Application under Section 60(5)(c) of the IBC, seeking relief to prevent the respondent/director from selling the company's assets to defeat the purpose of the I&B Code and cause losses to creditors. The application aimed to restrain the respondent from alienating assets with a malicious intent to harm legitimate creditor claims, including that of the petitioner.

3. In response to the Miscellaneous Application, the respondent's counsel contended that Section 60(5)(c) is only applicable when Corporate Insolvency Resolution Process (CIRP) is initiated or during liquidation. The respondent argued that since the application under Section 9 of the I&B Code was at a pre-admission stage, the tribunal could not entertain the Section 60(5)(c) application. The tribunal acknowledged the petitioner's concerns but noted that the authority to act under Section 60(5)(c) arises only during CIRP or liquidation.

4. Despite the limitations mentioned, the tribunal recognized the petitioner's apprehensions and decided to exercise its authority under Rule 11 of the NCLT Rules, 2016. The tribunal restrained the Corporate Debtor and its directors from alienating, encumbering, or creating any third-party interest in the company's assets until further orders. The directive aimed to ensure the preservation of assets and accounts of the company, allowing only legitimate expenses for day-to-day operations.

5. The tribunal adjourned the matter for further proceedings, indicating that the restrictions on asset alienation would remain in place until the application under Section 9 of the I&B Code was either admitted or rejected.