2020 (9) TMI 384 - AT - Insolvency and Bankruptcy

Reconsideration of claim submitted by the Applicant /Financial Creditor - direction to the R.P. to treat the payment of EMIs received by the Applicant/ Financial Creditor, as adjusted against the claim of the Applicant. Direction to the Resolution Professional to reconsider the claim submitted by the Applicant /Financial Creditor - HELD THAT - It is only a direction to the R.P., to reconsider the claim submitted by the Applicant in accordance with the provisions of the Code and Regulations. The said directions cannot be treated as an order passed by the Adjudicating Authority. This is a general direction whereby the Adjudicating Authority has directed the Resolution Professional to reconsider the claim of the financial creditor, as per Rules and Regulation. Thus, no Appeal lies against the said direction. Direction to the R.P. to treat the payment of EMIs received by the Applicant/ Financial Creditor, as adjusted against the claim of the Applicant, witha further direction that the remaining amount of loan will be considered and admitted by the R.P., after verification of the claim submitted by the Applicant - HELD THAT - It is about treating payments of EMIs received by the Financial Creditor during the moratorium, as adjusted against the claim. It is also clarified that the remaining amount of the loan will be considered and admitted by R.P. after verification of claim submitted by the Applicant. It is essential to mention that on 06th November 2019 the Applicant/Financial Creditor filed the Petition filed under Section 7 of the Insolvency Bankruptcy Code, 2016, for the initiation of Corporate Insolvency Resolution Process. The public announcement was made on 13th November 2019. After that on 04th December 2019, the Resolution Professional intimated the Bank of the Corporate Debtor to close all active ECS Accounts of the Corporate Debtor and further directed that no further ECS should be debited from the accounts of the Corporate Debtor. Whether, during the currency of the moratorium which has been imposed through Section 14 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC, 2016),can anyamount be released or realised from the total assets of the Corporate Debtor? - whether the AA was justified in allowing the amount debited from the Corporate Debtor s account in ICICI Bank? - HELD THAT - A reading of the Sections 14 and 15 of the IBC, 2016 makes it clear that the during the currencyof moratorium the sanctity of maintaining the integrity of the assets of the Corporate Debtor is a sine qua non for the CIRP. Section 14(1)(b) prohibits transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein. In view of the blanket prohibition mandated by Section 14 after the initiation of CIRP it stands to reason that any change in the conditions of assets from what existed on the date of initiation of CIRP is not permitted in the normal course. The section 14 also does not give any authority to the RP or AA to accord any preferential treatment to any creditor. The statute and the judicial pronouncement do not allow any preferential treatment to be given to any particular creditor. If one creditor is given preferential treatment then others should also get it to provide them a level playing field and same treatment in the eyes of law. This would not only cause confusion in the eyes of possible Resolution Applicants thereby putting a spanner in the resolution of the company which is the ultimate objective under the IBC, 2016. It would also lead to the collapse of waterfall mechanism regarding payment of liabilities to various stakeholders as is mandated and required under the IBC, 2016. Thus, the statute does not offer any in-built scope for preferential treatment to be accorded to any creditor. In addition, the provision in Section 14 do not allow any latitude to either the RP or the AA to give preferential treatment to any creditor - grounds exist for a full hearing to be accorded to the appellant after giving notice to the respondents and hearing both sides for a well-thought out and judicious decision. Hence, notices be issued to the respondents to be present in the tribunal and present their cases. The appellant shall provide fees etc. for service alongwith full contact details including postal and email address of the respondents. Matter be listed for hearing for admission (after notice).

Summary

Issues Involved:
1. Reconsideration of the claim submitted by the Applicant/Financial Creditor.
2. Treatment of EMIs received by the Financial Creditor during the moratorium period.
3. Condonation of delay in filing the appeal due to COVID-19 pandemic.
4. Preferential treatment to creditors during the moratorium period.
5. Compliance with the moratorium provisions under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016).

Detailed Analysis:

1. Reconsideration of the Claim Submitted by the Applicant/Financial Creditor:
The Appellant challenged the direction issued by the Adjudicating Authority to the Resolution Professional (R.P.) to reconsider the claim submitted by the Applicant/Financial Creditor as per the provisions of the Code and Regulations. The Tribunal clarified that this direction is a general instruction for the R.P. to act in accordance with the rules and regulations, and thus, no appeal lies against such a direction.

2. Treatment of EMIs Received by the Financial Creditor During the Moratorium Period:
The Adjudicating Authority directed that the EMIs received by the Financial Creditor during the moratorium period should be adjusted against the claim of the Applicant, with the remaining loan amount to be verified and admitted by the R.P. The Appellant argued that this adjustment violated the moratorium order under Section 14 of the IBC, 2016, which prohibits any action to foreclose, recover, or enforce any security interest during the moratorium period. The Tribunal noted that the deduction of EMIs from the Corporate Debtor’s account during the moratorium was in violation of the moratorium order and upheld the adjustment directive.

3. Condonation of Delay in Filing the Appeal Due to COVID-19 Pandemic:
The Appellant filed an application for condonation of delay, citing the unprecedented situation arising from the COVID-19 pandemic and lockdown restrictions. The Tribunal accepted the Appellant’s contention that the delay was due to the inability to obtain a certified copy of the impugned order in time and found the appeal to be within the limitation period.

4. Preferential Treatment to Creditors During the Moratorium Period:
The Appellant contended that the impugned order gave preferential treatment to the Respondent No. 1 by allowing the amount received through ECS during the moratorium to be adjusted against its claim. The Tribunal emphasized that the moratorium under Section 14 of the IBC, 2016, prohibits any preferential treatment to any creditor and maintains the integrity of the Corporate Debtor’s assets. The Tribunal referred to the Supreme Court’s judgment in Rajendra K. Bhutta vs. Maharashtra Housing and Area Development Authority, which underscored the importance of maintaining the status quo of the Corporate Debtor’s assets during the moratorium period.

5. Compliance with the Moratorium Provisions Under Section 14 of the IBC, 2016:
The Tribunal reiterated that Section 14 of the IBC, 2016, imposes a moratorium that prohibits any action to foreclose, recover, or enforce any security interest created by the Corporate Debtor. The Tribunal found that the deduction of EMIs during the moratorium period was a violation of this provision and upheld the Adjudicating Authority’s order to adjust the EMIs against the claim.

Separate Judgment by Dr. Alok Srivastava:
Dr. Alok Srivastava, Member (Technical), differed from the majority view and opined that a prima facie case existed for a full hearing. He emphasized the importance of maintaining the integrity of the moratorium and providing a fair chance for both the Appellant and Respondents to present their cases. He suggested issuing notices to the Respondents and conducting a detailed hearing before making a final decision.

Conclusion:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority’s directions to the R.P. to reconsider the claim and adjust the EMIs received during the moratorium against the Applicant’s claim. The Tribunal emphasized the importance of adhering to the moratorium provisions under Section 14 of the IBC, 2016, and maintaining the integrity of the Corporate Debtor’s assets. Dr. Alok Srivastava’s dissenting opinion highlighted the need for a detailed hearing to ensure a fair and judicious decision.