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2020 (10) TMI 271 - Tri - Insolvency and BankruptcyCIRP Process - priority of payment of dues - Whether it is permissible under the provisions of IBC for the Corporate Debtor to repay the debts of one of the many financial creditors in preference to other financial creditors after initiation of CIRP and invocation of moratorium u/s 14 of the Code? HELD THAT - The main reason for prohibition of various actions is to provide for a calm period to the Corporate Debtor during which a resolution can be arrived at. Such calm period ensures keeping the corporate debtor's assets together during the insolvency resolution process so that the corporate debtor may continue as a going concern while the creditors take a view on the resolution of default and cannot resort to individual enforcement action which may frustrate the objectives of the CIRP and the Code - It is pertinent to emphasize here that Clause (b) of Section 14(1) clearly and categorically prohibits any transfer or alienation of assets, legal rights or beneficial interest therein by the Corporate Debtor to any person. Cash in hand and in bank accounts are liquid assets of the Corporate Debtor. Therefore any preferential payment to any creditor during the period of CIRP will squarely fall within this prohibition. It is not permissible under the provisions of IBC for the Corporate Debtor to repay the debts of one of the many financial creditors in preference to other financial creditors after initiation of CIRP and invocation of moratorium u/s 14 of the Code - the question answered in negative - application dismissed.
Issues Involved:
Interpretation of provisions of the Insolvency and Bankruptcy Code, 2016 regarding repayment of debts during Corporate Insolvency Resolution Process (CIRP) and invocation of moratorium under section 14 of the Code. Detailed Analysis: Issue 1: Application under section 60(5) of the Insolvency and Bankruptcy Code, 2016 The Tribunal considered an Interlocutory Application filed by the Financial Creditor seeking direction to restore the original financial situation of units I & II financed by the Applicant and repaid due to fund availability, arguing that such repayment does not constitute "recovery." Issue 2: Facts of the Case The Corporate Debtor operated a coal-based thermal power plant in Chhattisgarh, with the project divided into phases and units. The Resolution Professional (RP) was appointed, and Financial Creditors, including the Applicant, became part of the Committee of Creditors (CoC). Issue 3: Dispute Over Debt Repayment During CIRP The RP denied servicing interest and principal payments to Unit I & II lenders during CIRP, citing moratorium restrictions and potential preferential payment issues. The Applicant and other lenders raised concerns about potential defaults and NPAs due to non-servicing of debts. Issue 4: Interpretation of Moratorium Provisions The RP argued that any payment to the Applicant during moratorium violates section 14 of the Code, emphasizing the prohibition on debt repayment during CIRP. The RP referenced legal precedents to support the prohibition on preferential treatment of creditors during CIRP. Issue 5: Tribunal's Decision The Tribunal analyzed the objectives of the Code, emphasizing asset maximization and stakeholder interests. It highlighted the prohibition on asset transfer during moratorium to maintain the corporate debtor's going concern status. The Tribunal ruled against allowing debt repayment to a single creditor during CIRP, in line with legal precedents and Code provisions. Conclusion: The Tribunal rejected the Applicant's application, emphasizing adherence to the Code's provisions and decisions made by the CoC regarding cash flow distribution among secured creditors. The decision aimed to prevent preferential treatment and ensure fair resolution processes during CIRP.
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