2019 (4) TMI 737 - AT - Insolvency and Bankruptcy

Payment received by the Appellant from the Corporate Debtor on the basis of post dated cheques encashed during the Corporate Insolvency Resolution Process - Section 14 of the I&B Code - Held that - Clause (b) of Section 14(1) prohibits transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein. As per Clause (c) of Section 14(1) any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under SARFAESI Act, 2002 is also prohibited. Clause (d) of sub-section (1) of Section 14 prohibits the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Debtor. From the simple reading of the provisions it is evident that after initiation of Corporate Insolvency Resolution Process once moratorium starts no person can recover any amount from the account of the Corporate Debtor. It is true that the cheque dates back to the date of handover but it cannot be encashed after the moratorium starts, in view of the specific provisions, to recover the amount from the Corporate Debtor. The impugned order is not interfered with - appeal disposed off.

Summary

Issues:
1. Interpretation of Section 14 of the Insolvency and Bankruptcy Code regarding moratorium during Corporate Insolvency Resolution Process.
2. Validity of encashing post-dated cheques by a creditor during the moratorium period.

Analysis:
1. The judgment revolves around the interpretation of Section 14 of the Insolvency and Bankruptcy Code, which imposes a moratorium during the Corporate Insolvency Resolution Process. The Adjudicating Authority held that payments received by the Appellant from the Corporate Debtor through post-dated cheques during the moratorium period are prohibited under Section 14. The Appellant argued that the liability arose when the post-dated cheques were handed over before the initiation of the insolvency process, and therefore, should not be restricted by Section 14.

2. The Appellant contended that as per a Supreme Court decision, the payment of a cheque relates back to the date of delivery, suggesting that the post-dated cheques should not be affected by Section 14. However, the Tribunal noted that once the moratorium begins, recovery actions against the Corporate Debtor are prohibited. Despite the cheque issuance predating the insolvency process, encashing them during the moratorium period is not permissible under Section 14.

3. Section 14(1) of the Code prohibits the transfer, encumbrance, or disposal of assets by the Corporate Debtor during the moratorium. The Tribunal emphasized that the specific provisions of Section 14 restrict any recovery from the Corporate Debtor once the moratorium commences, even if the debt arose before the insolvency process. The judgment underscores the importance of upholding the moratorium provisions to protect the Corporate Debtor's assets during the resolution process.

4. The Tribunal declined to interfere with the Adjudicating Authority's order, emphasizing that encashing post-dated cheques during the moratorium was impermissible. However, the Appellant was granted the opportunity to seek relief from an appropriate court after refunding the amounts as per the Adjudicating Authority's order. The Tribunal extended the deadline for refunding the amounts and disposed of the appeal without any costs.

This comprehensive analysis of the judgment highlights the key issues, legal arguments, interpretation of relevant provisions, and the Tribunal's decision regarding the encashment of post-dated cheques during the Corporate Insolvency Resolution Process under Section 14 of the Insolvency and Bankruptcy Code.