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2020 (3) TMI 26 - AT - Insolvency and BankruptcyCIRP Process - violation of section 17 of the 'I B Code' and Moratorium declared under section 14 of the 'I B Code' by the 'Resolution Professional' and the Directors of the 'Corporate Debtor' - issue of direction to the 'Corporate Debtor' to recall the funds allegedly diverted by the Directors during the period of Moratorium - HELD THAT - The 'Corporate Debtor' being a 'Financial Institution' as defined under section 3(14)(a) and 3(14)(b) of the 'I B Code' and it has obtained a Certificate of Registration under section 45-IA of the Reserve Bank of India Act, 1934 and is a Non-Banking Financial Company 'not authorised to accept public deposit' come within the meaning of 'Financial Service Provider'. It is evident that all 'non-banking financial institution' has been excluded from the definition of the 'Corporate Person', except those which are 'financial service provider'. The Appellant has failed to show any document that it is actually performing the business of 'financial service provider', as defined under the 'I B Code'. On the other hand, the Respondents have shown that it is not actually performing the business of 'financial service provider' and thereby does not come within the meaning of 'financial service provider'. For violating the provisions of the 'I B Code' including section 14, if the Appellant is liable for punishment under Chapter VII of the 'I B Code', particularly section 70, 74 etc. of the 'I B Code', they cannot divert the issue of punishment or their alleged violation of the order of the Adjudicating Authority/Tribunal by raising a separate issue which is not required for determination in this appeal in absence of any challenge of order of admission. Appeal dismissed.
Issues:
1. Initiation of Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. 2. Violation of Moratorium and Section 17 of the Insolvency and Bankruptcy Code. 3. Determination of whether the Corporate Debtor is a financial service provider. 4. Challenge to the order of the Adjudicating Authority. 5. Alleged diversion of funds by the Corporate Debtor's Directors during the Moratorium. Issue 1: Initiation of Corporate Insolvency Resolution Process The Adjudicating Authority initiated the Corporate Insolvency Resolution Process against the Corporate Debtor based on an application filed under Section 7 of the Insolvency and Bankruptcy Code. The order included the declaration of Moratorium under Section 14 of the Code, directing cooperation with the Resolution Professional. Issue 2: Violation of Moratorium and Section 17 The Directors of the Corporate Debtor failed to comply with the Moratorium order, leading to the Resolution Professional filing applications for violation of Section 17 of the Code. The Adjudicating Authority found fund transfers post-Moratorium declaration illegal and ordered the recall of diverted funds. Issue 3: Determination of Financial Service Provider Status The Appellant argued that the Corporate Debtor, being a Financial Institution, falls under the definition of a financial service provider and is excluded from the scope of the Code. However, the Respondents disputed this claim, providing evidence that the Corporate Debtor did not operate as a financial service provider. Issue 4: Challenge to the Adjudicating Authority's Order The Appellant challenged the combined order of the Adjudicating Authority, alleging the Corporate Debtor's status as a financial service provider. However, the Appellate Tribunal dismissed the appeals due to the absence of a challenge to the order initiating the Corporate Insolvency Resolution Process. Issue 5: Alleged Fund Diversion The Adjudicating Authority directed creditors to refund funds received from the Corporate Debtor during the Moratorium period. The Tribunal dismissed the appeals, allowing the Authority to consider contempt proceedings against the Appellant for alleged violations without challenging the initiation order. In summary, the judgment addressed the initiation of the Corporate Insolvency Resolution Process, violations of the Moratorium and Code sections, determination of the Corporate Debtor's financial service provider status, challenges to the Adjudicating Authority's order, and alleged fund diversion during the Moratorium. The Tribunal dismissed the appeals, emphasizing the importance of challenging the initiation order and allowing further proceedings against the Appellant for any violations.
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