2018 (1) TMI 1581 - Tri - Insolvency and Bankruptcy

Direction to the Financial Creditor - State Bank of India to extend full cooperation to the applicant - permission to manage and operate the affairs of the corporate debtor as a going concern - HELD THAT - Section 14(3) of I B Code would show that the prohibition has been imposed on the non-applicability of Section 14(1) to such transactions as may be notified by the Central Government in consultation with any Financial Sector Regulator. It is well know that the Insolvency Bankruptcy Code was enforced with effect from 01.12.2016 and the circular on which reliance have been placed pertain to the year 2004 and 2015. On repeated quarries made by us Ld. Counsel for the non applicant could not produce any circular issued under Section 14(3) by the Central Government notifying transaction to which the provision of Section 14(1) are not to apply. The circulars of RBI therefore, cannot override the effect of provisions of the Code as such circulars are only subordinate / legislation. Once the moratorium is in force the financial creditor including the bank has to prefer its claim before the RP, which would be considered alongwith other claims as per law - there is direct violation of Section 14(I)(c) which creates a bar prohibiting any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation Act is also prohibited. Besides there is violations of order of moratorium passed by this Tribunal on 01.06.2017. As there is a direct statutory violation we find that it is a fit case for imposing cost. Accordingly, a cost of ₹ 25,000/- is imposed on the non applicant / respondent. The cost be deposited in the Prime Minister Welfare Fund. Application allowed.

Summary

Issues Involved:
Application under Section 19(2) of Insolvency and Bankruptcy Code 2016 for cooperation from Financial Creditor, permission to manage corporate debtor, defreezing of assets, and initiation of insolvency proceedings against financial creditor. Dispute over cooperation from State Bank of India leading to non-performing assets (NPA) status. Interpretation of Section 14(3) in relation to circulars issued by Reserve Bank of India. Violation of moratorium and statutory provisions by financial creditor.

Analysis:

1. Application under Section 19(2) of Insolvency and Bankruptcy Code:
The Resolution Professional filed an application seeking cooperation from the Financial Creditor, State Bank of India, under Section 19(2) of the Insolvency and Bankruptcy Code 2016. The application also requested permission to manage the affairs of the corporate debtor and defreezing of assets. Allegations were made against the Financial Creditor for not cooperating and causing the corporate debtor's account to become Non Performing Assets (NPA).

2. Interpretation of Section 14(3) in relation to RBI circulars:
The Financial Creditor, State Bank of India, argued that the circulars issued by the Reserve Bank of India (RBI) regarding NPA declaration and bank guarantees override the provisions of Section 14 of the Code. However, the Tribunal found this argument unsustainable, emphasizing that the provisions of the Code prevail over any circulars or subordinate legislation. The Tribunal highlighted the non obstante clause in Section 238 of the Code, stating that it overrides any inconsistent provisions in other laws.

3. Violation of moratorium and statutory provisions:
The Tribunal found that the actions of the Financial Creditor, including debiting the corporate debtor's account and enforcing security interests during the moratorium period, violated Section 14(1)(c) and the order of moratorium. Consequently, a cost was imposed on the Financial Creditor for the statutory violation. The Resolution Professional's application was allowed, directing the Financial Creditor to reverse the debits and restore the account, along with defreezing the account and bank guarantees.

In conclusion, the judgment addressed the issues of cooperation from the Financial Creditor, interpretation of statutory provisions in relation to RBI circulars, and violations during the moratorium period. The Tribunal upheld the Code's provisions, emphasizing the non obstante clause and imposing costs for statutory violations by the Financial Creditor.