2019 (1) TMI 872 - HC - Indian Laws

Arbitration and Conciliation - Petition filed for restraining the respondent from invoking/encashing the performance bank guarantee - effect of declaration of moratorium - interim orders effect - Held that - Considering the aim and object of the provisions of the Code, it is clear that provisions of declaration of moratorium under the Code, have been enacted for the benefit of corporate debtor to protect it from debt recovery action, endangering, diminishing, dissipating or having adverse impact on the assets of corporate debtor in any manner and the purpose of moratorium includes the protection of assets of the corporate debtor during insolvency resolution process and facilitating orderly completion of the process envisaged during the insolvency resolution process and ensuring the company to continue. In present case, respondent is undisputedly a corporate debtor, as defined in Section 3(8) of the Code, in the proceedings before Appellate Tribunal. But interim order dated 15.10.2018 passed by Appellate Tribunal is not an order passed under Section 14 of the Code. It is explicit from the interim order dated 15.10.2018 passed by the Appellate Tribunal that though moratorium has not been declared with respect to respondent Company, but the interim directions are identical to the provisions of Section 14 of the Code. Therefore, the principle that declaration of moratorium will not cause to stay the proceedings beneficial to corporate debtor, are also applicable in the present case. Interim order prohibits the proceedings against IL&FS (respondent herein) and its 348 Group Companies, which restrains any kind of recovery from the respondent herein, but not the proceedings beneficial to IL&FS, entitling it for recovering any amount from other parties. Sine die adjournment of present case would run contrary to the interest of respondent Company herein, as it would amount the interim stay against the interest of respondent Company. From the combined reading of interim directions contained in order dated 15.10.2018, it is evident that stay has been ordered against the proceedings having adverse effect on the financial resources of IL&FS (respondent herein), therefore, interim order dated 15.10.2018 will not be applicable in present proceedings, for the reasons, as discussed above, as sine die adjournment of present proceedings will have adverse effect on the interest of respondent Company. Therefore, present application is dismissed. It is made clear that observations made in this application shall be confined only for the purpose of adjudication of the issues raised in this application and would not amount, at any cost, an expression of view on merit in favour of either party with respect to issues involved in the main petition under Section 9 of the Arbitration and Conciliation Act. Claims and counter claims in the main petition are to be adjudicated on its own merits, independent of any observations made in present

Summary

Issues Involved:
1. Sine die adjournment of proceedings.
2. Interpretation of interim order by the National Company Law Appellate Tribunal (NCLAT).
3. Applicability of Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016.
4. Impact on the financial interests of the respondent.
5. Jurisdiction and powers of the NCLAT under Sections 241 and 242 of the Companies Act, 2013.

Issue-wise Detailed Analysis:

1. Sine die adjournment of proceedings:
The petitioner sought an indefinite adjournment of the proceedings based on an interim order dated 15.10.2018 by the NCLAT. This order was issued in Company Appeal (AT) Nos. 346 and 347 of 2018, and the petitioner argued that it necessitated a stay of the current proceedings. The respondent opposed this, arguing that such an adjournment would adversely affect their financial interests.

2. Interpretation of interim order by the National Company Law Appellate Tribunal (NCLAT):
The interim order by the NCLAT included directions to halt suits or proceedings against IL&FS and its 348 group companies, and to prevent actions to foreclose, recover, or enforce any security interest over their assets. The petitioner interpreted this order as grounds for sine die adjournment, while the respondent contended it should not be applied in a manner that harms their financial interests.

3. Applicability of Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016:
The petitioner referred to the provisions of the IBC, particularly Section 14, which provides for a moratorium on debt recovery actions against corporate debtors during insolvency resolution. However, the court noted that the NCLAT's order was not issued under Section 14 of the IBC but under Sections 241 and 242 of the Companies Act, 2013. The court emphasized that the NCLAT's interim order was analogous to a moratorium but not identical, and thus, the principles of Section 14 were relevant but not directly applicable.

4. Impact on the financial interests of the respondent:
The respondent argued that the interim order should not be interpreted to their detriment. They emphasized that the provisions of the IBC are intended to protect corporate debtors, not to cause financial harm. The court agreed, noting that the continuation of the restraint order without adjudication on merits would adversely affect the respondent's financial claim.

5. Jurisdiction and powers of the NCLAT under Sections 241 and 242 of the Companies Act, 2013:
The court observed that the NCLAT had issued the interim order under Sections 241 and 242 of the Companies Act, which deal with the oppression and mismanagement of companies. The NCLAT's order aimed to protect the interests of IL&FS and its group companies, considering the larger public interest and the economy. The court recognized that the NCLAT's powers under these sections were broader than those under the IBC.

Conclusion:
The court concluded that the interim order by the NCLAT did not warrant sine die adjournment of the current proceedings. The order was intended to protect IL&FS and its group companies from adverse financial actions, not to halt proceedings that could benefit them. Therefore, the application for sine die adjournment was dismissed, ensuring that the main petition under Section 9 of the Arbitration and Conciliation Act would be adjudicated on its merits. The court clarified that its observations were limited to the current application and did not reflect any view on the merits of the main petition.