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2022 (2) TMI 627 - AT - Insolvency and BankruptcySale of assets of Corporate Debtor during moratorium period - prohibition on Corporate Debtor only or the prohibition also operate on the RP and CoC in exercise of their duties and jurisdiction under the Code - Whether the Appellant has right to challenge the decision of the NCLT dated 11th June 2020? - HELD THAT - The Respondents have challenged the locus of the Appellant to file this Appeal questioning the order dated 11th June 2020 passed by the Adjudicating Authority. The Appellant is a registered Trade Union representing 95% of the aircraft maintenance engineers of the Corporate Debtor. The Appellant s Union had submitted a claim and Respondent No.1 has admitted claim worth INR 1, 525, 859, 239/-. The Appellant is a stakeholder in the CIRP its claim having been admitted. The Appellant has come up in this Appeal questioning the order of the NCLT dated 11th June 2020 by which it has granted approval to the proposal of CoC and RP to sell the subject assets of the Corporate Debtor. The Appellant being stakeholder in the CIRP has interest in the assets of the Corporate Debtor since it is the value of assets which will be relevant for determination of its claim either in the Resolution Plan or in the liquidation proceedings - Whether the sale is in accordance with the provisions of the Code or not is a question on merit which we shall proceed to consider while considering the other issues as noted above. However insofar as the submission of the Respondent that Appellant is not an aggrieved person we do not find ourselves in agreement with the submission of learned Counsel for the Respondents. The Appellant has sufficient locus to file this Appeal. The Appellant is a person aggrieved within the meaning of Section 61 of the Code and the Appeal on behalf of the Appellant is fully maintainable. Whether the prohibition contained under Section 14 sub-section (1) sub-clause (b) is only on the Corporate Debtor or the prohibition also operate on the RP and CoC in exercise of their duties and jurisdiction under the Code? - Whether RP in exercise of power under Regulation 29 of CIRP Regulation 2016 can sell the assets of Corporate Debtor during the currency of Moratorium declared under Section 14 of the Code? - HELD THAT - The Moratorium which comes into operation by order of the Adjudicating Authority on the insolvency commencement date is limited to the date when Adjudicating Authority approves the Resolution Plan under sub-section (1) of Section 31 or passes an order of liquidation under Section 33. The Moratorium is to cease to have an effect from either of the above dates. Thus the life of Moratorium is not indefinite and is limited. Normally period of completion of CIRP is 180 days and an ultimate time limit taking into consideration including all extension is 330 days as required by Section 12 sub-section (3). The object of the Code is clearly that there should be no depletion of Corporate Debtor s assets during the CIRP - submission of learned Counsel for the Appellant relying on the above judgment of Hon ble Supreme Court is correct that there is statutory freeze when Moratorium is done under Section 14. The question to be answered is as to whether the statutory freeze which comes into operation has any exception to it or the prohibition contained in Section 14 is absolute - The prohibition under Section 14(1)(b) is also regarding encumbering the assets of Corporate Debtor. When Section 28(1) expressly provides for approval of Committee of Creditors for creating any security interest over the assets of the Corporate Debtor this is a clear exception engrafted under the Code itself to Section 14(1)(b). The above scheme of the Code leads us to come to the conclusion that injunction under Section 14(1)(b) is against the Corporate Debtor which provision does not restrain any other entity authorised under the Code to transfer encumber or alienate the assets of the Corporate Debtor. Thus prohibition under Section 14(1)(b) has to be read along with exceptions created in the Code itself. RP was of the opinion that sale of asset shall result in better realization of the value. In the same meeting dated 24th April 2020 the CoC has passed Resolution approving minimum sale consideration for the sale of two floors being 3rd and 4th floors of BKC property as INR 490 crores. The CoC although in its Resolution has contemplated for approval of NCLT for carrying out sale transaction. Thus the condition as contained in Regulations 29 sub-regulation (2) by approval of the CoC and Section 28 sub-section (3) by minimum 66% of vote is satisfied since the Resolution was passed by CoC with 74.45% of votes. We further notice that under Regulation 29 the jurisdiction has been given to the RP to sell unencumbered assets. Thus the sale is permissible of only unencumbered assets. In the present case subject property was under encumbrance since the Corporate Debtor had taken a loan from HDFC on the security of 2nd 3rd and 4th floors of the subject property - The prohibition under Section 14(1)(b) thus in transferring the assets of the CD is throughout the currency of CIRP except where statute specifically empowers RP to carry the sale on fulfillment of conditions as laid down in the statute. Whether decision of RP to proceed with the sale of BKC property and approval of CoC of the said proposal by its Resolution in the meeting dated 24th April 2020 is impermissible by virtue of declaration and Moratorium under Section 14(1)? - HELD THAT - The decision of RP to proceed with the sale of BKC property after approval of the CoC in the meeting dated 24th April 2020 was permissible and was not interjected by virtue of declaration of Moratorium under Section 14(1)(b). Whether in view of Section 14 sub-section (1) sub-clause (c) of the Code no Financial Creditor can foreclose recover any debt or enforce any security interest created by the Corporate Debtor in respect of its property? - HELD THAT - In CIRP no Secured Creditor can realize its claim or its debt due to prohibition imposed under Section 14(1)(c). The provisions of the Code and the CIRP Regulations do not contain any exception to the effect that a Secured Creditor can be paid during CIRP process. If it is permitted then Secured Creditors can realize their security or recover their security interest during CIRP. The Financial Creditors who are mostly the Secured Creditors shall always lean in favour of realizing their dues adversely affecting the rights of other stakeholders which is not permissible in CIRP. The Appellant a stakeholder in the CIRP must have received due consideration in the final Resolution Plan approved on 22nd June 2021 which Resolution Plan is also under challenge in separate Appeal there are no reason to set-aside the impugned order dated 11th June 2021 at this stage. Appeal dismissed.
Issues Involved:
1. Right of the appellant to challenge the decision of the NCLT. 2. Prohibition under Section 14(1)(b) of the Insolvency and Bankruptcy Code (IBC) on the Corporate Debtor, RP, and CoC. 3. RP's power under Regulation 29 of CIRP Regulations to sell assets during Moratorium. 4. Validity of RP and CoC's decision to sell BKC property during Moratorium. 5. Prohibition under Section 14(1)(c) on Financial Creditors to enforce security interest. 6. Relief entitled to the appellant. Issue-wise Detailed Analysis: 1. Right of the Appellant to Challenge the Decision of the NCLT: The appellant, a registered trade union representing 95% of aircraft maintenance engineers of the Corporate Debtor, had its claim worth INR 1,525,859,239/- admitted in the CIRP. The appellant challenged the NCLT's order approving the sale of the Corporate Debtor's assets, arguing that the sale was impermissible under the Moratorium imposed by Section 14 of the IBC. The tribunal found that the appellant had sufficient locus to file the appeal as a stakeholder with an admitted claim and interest in the Corporate Debtor's assets. 2. Prohibition under Section 14(1)(b) on the Corporate Debtor, RP, and CoC: Section 14(1)(b) imposes a statutory freeze on the Corporate Debtor from transferring, encumbering, alienating, or disposing of its assets during the Moratorium. The tribunal examined whether this prohibition extends to the Resolution Professional (RP) and the Committee of Creditors (CoC). It concluded that the prohibition is directed at the Corporate Debtor, but the RP and CoC are not restrained by this provision if they act within the powers conferred by the IBC and the CIRP Regulations. Specifically, Section 28(1)(b) allows the RP to create security interests with CoC approval, indicating an exception to the prohibition. 3. RP's Power under Regulation 29 of CIRP Regulations to Sell Assets During Moratorium: Regulation 29 permits the RP to sell unencumbered assets of the Corporate Debtor if necessary for better realization of value, subject to CoC approval. The tribunal held that despite the Moratorium, the RP could conduct such sales under Regulation 29, provided the sale is for better realization of value and approved by the CoC. In this case, the RP's decision to sell the BKC property was found to be within the regulatory framework, as it was approved by the CoC with 74.45% votes. 4. Validity of RP and CoC's Decision to Sell BKC Property During Moratorium: The tribunal determined that the decision to sell the BKC property was permissible and not prohibited by the Moratorium under Section 14(1)(b). The RP acted within the powers conferred by the IBC and the CIRP Regulations, and the CoC's approval was obtained as required. The sale was deemed necessary for better realization of the Corporate Debtor's value, and the proceeds were used to secure title to six aircrafts and settle claims with HDFC. 5. Prohibition under Section 14(1)(c) on Financial Creditors to Enforce Security Interest: Section 14(1)(c) prohibits Financial Creditors from foreclosing, recovering, or enforcing any security interest during the Moratorium. The tribunal noted that this prohibition is to prevent depletion of the Corporate Debtor's assets and ensure a successful insolvency resolution. The tribunal emphasized that Secured Creditors cannot enforce their security interests during the CIRP, as it would defeat the purpose of the Moratorium and the insolvency resolution process. 6. Relief Entitled to the Appellant: The tribunal acknowledged that the appellant, as a stakeholder, had its claim admitted in the CIRP. However, since the CIRP had culminated in a successful resolution with an approved Resolution Plan, the tribunal was not inclined to reverse the sale transaction at this stage. The tribunal noted that the sale of the BKC property and the acquisition of the aircrafts increased the Corporate Debtor's asset value, and the Resolution Plan addressed the claims of all stakeholders, including the appellant. Consequently, no pecuniary benefit could be extended to the appellant, and the appeal was dismissed. Conclusion: The tribunal dismissed the appeal, upholding the validity of the RP and CoC's actions under the IBC and CIRP Regulations. The sale of the BKC property was deemed permissible, and the prohibition under Section 14(1)(b) did not extend to the RP and CoC acting within their statutory powers. The tribunal emphasized the importance of preserving the Corporate Debtor's assets and maximizing their value during the CIRP.
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