2022 (12) TMI 1200 - HC - Insolvency and Bankruptcy

Scope of the IBC - CIRP - Effect of moratorium - proceedings where both the parties may gain out of the agreement/contract. - Dishonor of cheque - Time-lines for completion of the insolvency resolution process by the Adjudicatory Authority - delay in completion of the proceedings otherwise - Prayer to consider the issue in the public interest so that the object and purpose of the Code of 2016 is served and at the same time Sections 12 and 14 of the Code of 2016 are given effect to for the purpose sought to be achieved therein - HELD THAT - The issue therein was in reference to the proceedings under Section 138 of the Negotiable Instruments Act, 1881, which was alleged to be outside the scope of Section 14 of the Code of 2016. The argument was not accepted by the Apex Court despite the proceeding not being exactly of civil nature, but having impact on the corporate debtor for a monetary obligation and it was held that such proceedings would come under the prohibition of Section 14 of the Code of 2016 - The primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting it from its own management and from a corporate death by liquidation. The time-lines given therein have also been referred by the Apex Court as a measure to protect all its creditors and workers by seeing that the resolution process goes through as fast as possible. The reference of Section 85 of the Code of 2016 in Chapter II in Part III of the Code of 2016, has also been given to show the effect of admission of application, i.e., on the date of admission of the application, the moratorium period shall commence in respect of all the debts. The provision aforesaid does not refer to any other proceeding than in reference to the debts. Section 14 of the Code of 2016 is meant to refer those proceedings where even the corporate debtor would be a gainer, apart from third party, because third party would not fall under the definition of creditor . The bankruptcy proceedings remains generally to secure the institution by applying the measures given under the Code of 2016 and it is mainly in reference to the debt liability of the company and not to apply during the period of moratorium. It does not exclude application of other provisions to be given effect to and as the petitioner illustrated, in regard to the exclusion of the decree for specific performance where even a corporate debtor would be receiving the monies. The issue that now remains is about the maintainability of the public interest litigation. The writ petition has been filed showing it to be in public interest, but other than to refer to the work of research by the petitioner, who is pursuing her studies in Post Graduation, no other reason has been given to indicate the public interest. The purpose of public interest litigation is quite different than as construed by the petitioner - We, therefore, do not find the writ petition to be maintainable as a public interest litigation, but appreciating the work undertaken by the petitioner to seek interpretation of the provisions, this court has summarized the issue and made clarification of the issue by giving interpretation of the provisions therein. The writ petition is disposed of.

Issues Involved:
1. Application of Sections 12 and 14 of the Insolvency and Bankruptcy Code, 2016.
2. Time-limits for completion of the Corporate Insolvency Resolution Process (CIRP).
3. Scope of moratorium under Section 14 regarding non-monetary obligations.
4. Maintainability of the public interest litigation.

Detailed Analysis:

1. Application of Sections 12 and 14 of the Insolvency and Bankruptcy Code, 2016:
The petitioner, a law student, raised concerns about the application of Sections 12 and 14 of the Insolvency and Bankruptcy Code, 2016 (the Code). The petitioner argued that the timelines stipulated under Section 12 for the completion of the CIRP are not strictly adhered to, referencing the judgment in the case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and others. The petitioner also contended that the moratorium under Section 14 should apply only to monetary liabilities and not to non-monetary obligations where both parties benefit from the contract.

2. Time-limits for completion of the Corporate Insolvency Resolution Process (CIRP):
Section 12 of the Code mandates that the CIRP must be completed within 180 days, extendable by 90 days, but not beyond 330 days in total, including any extensions and the time taken for legal proceedings. The petitioner emphasized that the word "shall" indicates a mandatory requirement, and any delay beyond this period is against the principles of the Code and detrimental to the corporate debtor. The court acknowledged the timelines but noted the liberty to extend the period under certain conditions, referencing the judgment in Essar Steel India Limited.

3. Scope of moratorium under Section 14 regarding non-monetary obligations:
The petitioner argued that Section 14's moratorium should apply only to monetary liabilities and not to non-monetary obligations where the corporate debtor and third parties benefit. The court referred to the definitions of "claim," "debt," "default," and "creditor" under Section 3 of the Code and examined the scope of Section 14. The court cited the Supreme Court's judgment in P. Mohanraj and others v. Shah Brothers Ispat Private Limited, which held that proceedings under Section 138 of the Negotiable Instruments Act fall within the moratorium's scope due to their monetary impact on the corporate debtor. The court concluded that Section 14 is not limited to monetary obligations and can include non-monetary transactions that benefit the corporate debtor.

4. Maintainability of the public interest litigation:
The court questioned the maintainability of the writ petition as a public interest litigation (PIL), noting that the petitioner did not provide sufficient reasons to indicate public interest beyond her research work. The court clarified that the purpose of a PIL is different from the petitioner's interpretation and found the writ petition not maintainable as a PIL. However, the court appreciated the petitioner's efforts and provided a detailed interpretation of the provisions.

Conclusion:
The court disposed of the writ petition, emphasizing the mandatory timelines for CIRP under Section 12 and the broad scope of the moratorium under Section 14, which can include non-monetary obligations benefiting the corporate debtor. The court also clarified that the petition did not qualify as a public interest litigation. There was no order as to costs.

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