2024 (11) TMI 800 - AT - IBC

Challenge to order directing for reversal of the directions which took place after 22.02.2023 till 01.06.2023 - determination of the Insolvency Commencement Date (ICD) and its implications - Respondents opposing the interim prayer contends that the amount having been appropriated, is clear violation of moratorium which commenced on 22.02.2023 - HELD THAT - Notices are already issued in the Appeals and a date for hearing is fixed, thus, the ends of justice be served in directing the Axis Bank and other lenders, who are Appellants before us, to keep the amount which is to be reversed under the impugned order in a separate interest bearing account so that in the event amount is finally decided to be reversed the interests of the corporate debtor are protected. Appellant being themselves banks and financial institutions there can be no apprehension that the banks shall not reverse the amount in the account of the corporate debtor in event any final decision is taken in the appeal to that effect. The above interim management shall protect the interest of all the parties. List these Appeals on 03.12.2024 at 2.00 P.M. for hearing and disposal.

Issues Involved:

1. Determination of the Insolvency Commencement Date (ICD) and its implications.
2. Validity of the moratorium during the stay period.
3. Legitimacy of fund appropriations by lenders during the stay period.
4. Directions regarding the reversal of transactions and appropriations.
5. Interim protection and management of appropriated funds pending appeal.

Detailed Analysis:

1. Determination of the Insolvency Commencement Date (ICD) and Its Implications:

The central issue revolves around the Insolvency Commencement Date (ICD) as defined under Section 5(13) of the Insolvency and Bankruptcy Code (IBC). The Adjudicating Authority fixed the ICD at 22.02.2023. Despite the appeal and subsequent stay order, the Authority rejected the application seeking to change the ICD to 10.08.2023. The Authority emphasized that all Corporate Insolvency Resolution Process (CIRP) activities must be reckoned from the original ICD of 22.02.2023, thus rejecting any alteration to the timeline.

2. Validity of the Moratorium During the Stay Period:

The moratorium under Section 14 of the IBC was deemed to continue from 22.02.2023, despite the interim stay order dated 07.03.2023. The Adjudicating Authority held that the stay did not nullify the moratorium, thereby maintaining its applicability throughout the stay period. This interpretation was crucial as it impacted the legality of actions taken by the corporate debtor and lenders during this period.

3. Legitimacy of Fund Appropriations by Lenders During the Stay Period:

The lenders, particularly Axis Bank, appropriated funds from the corporate debtor's account, asserting their contractual rights. However, the Adjudicating Authority directed that all transactions and appropriations made between 07.03.2023 and 10.08.2023 be reversed, citing the continuation of the moratorium. The Authority's decision was challenged by the lenders, who argued that the suspended management's actions and the interim stay order justified their appropriations. The Authority, however, maintained that the appropriations violated the moratorium provisions.

4. Directions Regarding the Reversal of Transactions and Appropriations:

The Adjudicating Authority ordered the reversal of all transactions and appropriations undertaken during the stay period, mandating that the amounts be remitted back to the corporate debtor's account within four weeks. This decision was contested by the lenders, who argued that the appropriations were made in good faith under the belief that the moratorium was not in effect. The Authority, however, upheld the reversal to maintain the integrity of the CIRP.

5. Interim Protection and Management of Appropriated Funds Pending Appeal:

Pending the final decision in the appeals, the Tribunal directed Axis Bank and other lenders to hold the appropriated amounts in a separate interest-bearing account. This interim measure was designed to protect the interests of the corporate debtor while ensuring that the funds could be reversed if the appeal's outcome required it. The Tribunal acknowledged the lenders' status as financial institutions, mitigating concerns about their ability to comply with any future orders to reverse the appropriations.

The appeals are scheduled for a hearing on 03.12.2024, with the Tribunal having issued notices and set timelines for filing replies and rejoinders. The interim arrangement aims to balance the interests of all parties involved, pending the Tribunal's final decision on the appeals.

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