2022 (8) TMI 236 - AT - Insolvency and Bankruptcy

Competency of Adjudicating Authority to pass order under Section 66 of IBC during currency of moratorium under Section 14 of IBC - core contention of the appellant is that the prohibition under Section 14 (1) (a) is applicable to Section 66 of IBC also - HELD THAT - In the present facts of the case there is absolutely no inconsistency or repugnancy between Section 14 (1) (a) and Section 66 of IBC. Section 14 of IBC is a bar against institution and prosecution of any suits or proceedings or execution of orders and decrees in other courts or Tribunals but not a bar to pass appropriate order in the pending proceedings against the resolution professional or suspended directors and related parties, before the Adjudicating Authority, during the insolvency resolution process or liquidation process. Section 66 of IBC empowered the Tribunal to pass appropriate orders when the suspended directors or insolvency professional of the Corporate Debtor carried on fraudulent trading or business during resolution process. Therefore, the Adjudicating Authority passed the impugned order only by exercising power that conferred on it by Section 66 of IBC. Hence, the contention that during moratorium, the Adjudicating authority shall not pass an order impugned in this appeal is unsustainable, without any merit. Section 60 (5) (a) of IBC permits the Adjudicating Authority to pass any order on any application or proceeding by or against the corporate debtor or corporate person notwithstanding anything to the contrary contained in any other law for the time being in force. Non-obstante clause contained in Section 60 (5) authorizes the Tribunal to pass such orders and the present order is one such order passed under Section 66 of IBC, exercising power under Section 60 (5) (a) of IBC - on harmonious construction of Section 14 (1) (a), Section 66 read with Section 60 (5) (a), to make the statute (IBC) effective and workable, that the order passed by the Adjudicating Authority is in accordance with law, warrants no interference of this Tribunal. The appeal is liable to be dismissed.

Summary

Issues Involved:
1. Legality of the order passed under Section 66 of IBC during the moratorium under Section 14 of IBC.
2. Competence of the Adjudicating Authority to pass orders against the resolution professional and related parties during the insolvency resolution process.

Detailed Analysis:

1. Legality of the Order Passed During Moratorium:
The appellant contended that the Adjudicating Authority committed a serious error by issuing directions during the moratorium imposed under Section 14 of IBC. Section 14 (1) (a) of IBC prohibits the institution or continuation of suits or proceedings against the corporate debtor, including the execution of any judgment, decree, or order in any court, tribunal, arbitration panel, or other authority. However, the Tribunal clarified that this prohibition does not extend to the passing of orders by the Adjudicating Authority during the insolvency resolution process or liquidation process against resolution professionals, suspended directors, or related parties. The Tribunal emphasized that Section 66 of IBC empowers the Adjudicating Authority to pass appropriate orders when fraudulent transactions are identified, regardless of the moratorium under Section 14.

2. Competence of the Adjudicating Authority:
The Tribunal examined whether the Adjudicating Authority was competent to pass the impugned order under Section 66 of IBC during the moratorium. Section 66 allows the Adjudicating Authority to hold individuals liable for fraudulent trading or wrongful trading during the insolvency resolution process or liquidation process. The Tribunal noted that Section 14 and Section 66 serve different purposes and must be read independently to achieve the objectives of the IBC. Section 14 aims to prevent fictitious claims by third parties, while Section 66 aims to prevent fraudulent trading or business by the corporate debtor through its resolution professional or suspended directors. The Tribunal concluded that there is no inconsistency or repugnancy between these sections, and they must be construed harmoniously to make the statute effective and workable.

Conclusion:
The Tribunal held that the Adjudicating Authority was within its rights to pass the impugned order under Section 66 of IBC during the moratorium period. The order directed the respondents to contribute Rs. 2687.27 lacs to the assets of the corporate debtor and to institute criminal prosecution against the respondents for fraudulent activities. The Tribunal found no illegality in the order and dismissed the appeal, confirming the Adjudicating Authority's decision. The appeal was deemed devoid of merit, and the order was upheld without costs.