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2018 (10) TMI 1854 - Tri - Companies LawApplication seeking comprehensive moratorium qua R1 Company and the group Companies of R1 for three months or such other period - protection against any action by any party to foreclose, recover or enforce any security interest created over the assets of R1 Company or any other group Company - HELD THAT - It appears that Petitioner is seeking moratorium qua R1 Company and the group Companies, to protect the institution and continuation of any legal institution or continuation of any legal proceedings before any Court, Tribunal, Arbitral Panel or Authority. The reliefs sought by Petitioner resembles with the moratorium provided u/s 14 of the Insolvency Bankruptcy Code which provides that if the petition is admitted u/s 14 of the IBC, then moratorium order shall come into effect. Now applicant UOI is seeking moratorium order in this case on the basis that R1 Company is financial service provider and IBC do not apply for the financial service providers. Therefore, they have moved the application u/s 241(2) of the Companies Act, 2013 for seeking moratorium order. It is further stated in the Application that present legal framework does not facilitate making the necessary application under the IBC for resolution of R1 Company as the IBC does not address resolution relating to financial service providers. It has also stated that Central Government has the power u/s 227 of the IBC to notify certain categories of the financial service providers who may be subject to the provision of the IBC. Since no such notification has been issued by the Central Government till date, therefore, Petitioner has moved this application u/s 241 and 242 of the Companies Act, 2013 - the resolution of R1 Company and its group companies as a whole is inextricably linked to the resolution of each of these companies, and there is no power to wind up a company on account of it defaulting on its debt. Thus, the only recourse is to initiate the insolvency proceedings under IBC for this is not available in respect of financial service providers. If the Petition is filed under IBC for initiating insolvency proceeding then after admission of the petition and on initiation of insolvency proceedings moratorium order under IBC becomes applicable. The Union of India's contention is that since it has not notified the financial service provider, therefore IBC is not applicable to the financial service providers for want of notification from Govt. of India. Thus they have no option except to approach this Tribunal for seeking declaration of moratorium for restructuring of debts of R1 and its group companies. The moratorium orders which can be passed under the IBC cannot be extended under section 241-242 of the Companies Act, 2013. Powers under section 242 of the Companies Act, 2013 can be exercised by NCLT only in case the affairs of the company have been or being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in the manner prejudicial to the interests of the company. In such circumstances the Tribunal may, with a view to bringing to an end the matters complained of make such orders as it things fit - The provision of section 242 provides that it can be invoked when the matter is complained of u/s 241 of Companies Act, 2013. In this case, the remedy has already been granted after being satisfied that the affairs of the company are mismanaged. The suspension of the existing board was under the powers of section 242 of the Companies Act 2013. The moratorium which has been sought by the Union of India by an application u/s 242 of the Companies act 2013 cannot be granted - Application disposed off.
Issues Involved:
1. Request for Moratorium 2. Financial Crisis and Defaults 3. Legal Framework for Financial Service Providers 4. Applicability of Insolvency and Bankruptcy Code (IBC) 5. Powers under Companies Act, 2013 Issue-wise Detailed Analysis: 1. Request for Moratorium: The Union of India filed MA 1173/2018 seeking a comprehensive moratorium for R1 Company and its group companies for three months. The petitioner requested the moratorium to prevent: (i) Institution or continuation of suits or proceedings against R1 Company and its group companies. (ii) Actions to foreclose, recover, or enforce any security interest over the assets of R1 Company and its group companies. (iii) Acceleration, premature withdrawal, or invocation of any financial facilities availed by R1 Company and its group companies. 2. Financial Crisis and Defaults: R1 Company operates through more than 348 group companies in various sectors, including roads, power, engineering, financial services, maritime, and urban development. The liquidity crunch faced by R1 Company and its group companies led to defaults on debt obligations. ITNL defaulted since 30.06.2018, R1 Company since 25.08.2018, IFIN since 12.09.2018, and IEDCL since 22.08.2018. The consolidated balance sheet for 2017-18 showed a net loss of ?2,670 crores and borrowings of about ?91,000 crores against ?6,950 crores in equity share capital and reserves. 3. Legal Framework for Financial Service Providers: The petitioner argued that the current legal framework does not facilitate the necessary application under the IBC for the resolution of R1 Company, as the IBC does not address financial service providers. The Financial Resolution and Deposit Insurance Bill, 2017 (FDI), which was intended for financial institutions, was withdrawn in July 2018. The Companies Act, 2013 does not provide for winding up a company due to defaulting on its debt, leaving no recourse but to initiate insolvency proceedings under the IBC, which is not applicable to financial service providers. 4. Applicability of Insolvency and Bankruptcy Code (IBC): The petitioner contended that the IBC's moratorium provisions (Section 14) should apply, as they prevent legal proceedings, asset transfers, and enforcement of security interests during the moratorium period. However, the IBC does not apply to financial service providers without a government notification under Section 227. The petitioner sought a moratorium under Sections 241 and 242 of the Companies Act, 2013, arguing that the resolution of R1 Company and its group companies is inextricably linked. 5. Powers under Companies Act, 2013: The Tribunal noted that its powers under Section 242 of the Companies Act, 2013, can only be exercised if the company's affairs are conducted prejudicially or oppressively. The Tribunal had already suspended the existing board of R1 Company and appointed new directors under Section 242. However, the Tribunal clarified that Sections 241 and 242 do not equate to the moratorium provisions under Section 14 of the IBC. The Companies Act, 2013, does not have overriding effects like Section 238 of the IBC. Conclusion: The Tribunal concluded that the moratorium sought by the Union of India under Section 242 of the Companies Act, 2013, could not be granted. The application MA No. 1173/2018 in CP 3638/2018 for issuing a moratorium was rejected.
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