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TMI Blog2018 (10) TMI 1854X X X X Extracts X X X X X X X X Extracts X X X X ..... or seeking moratorium order. It is further stated in the Application that present legal framework does not facilitate making the necessary application under the IBC for resolution of R1 Company as the IBC does not address resolution relating to financial service providers. It has also stated that Central Government has the power u/s 227 of the IBC to notify certain categories of the financial service providers who may be subject to the provision of the IBC. Since no such notification has been issued by the Central Government till date, therefore, Petitioner has moved this application u/s 241 and 242 of the Companies Act, 2013 - the resolution of R1 Company and its group companies as a whole is inextricably linked to the resolution of each of these companies, and there is no power to wind up a company on account of it defaulting on its debt. Thus, the only recourse is to initiate the insolvency proceedings under IBC for this is not available in respect of financial service providers. If the Petition is filed under IBC for initiating insolvency proceeding then after admission of the petition and on initiation of insolvency proceedings moratorium order under IBC becomes applicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of suits or any other proceedings by any party against R1 Company and any of the group companies in any Court of Law/Tribunal/Arbitration Panel or Arbitration Authority; and (ii) Any action by any party to foreclose, recover or enforce any security interest created over the assets of R1 Company and/or any of the group companies including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (iii) The acceleration, premature withdrawal or other withdrawal, invocation of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits, guarantees, letter of support, commitment or comfort and other financial facilities or obligations availed by R1 Company and/or the group companies whether in respect of the principal or interest or hedge liability or any other amount contained therein. 3. Union of India has stated that by the present application the applicant seeks moratorium for a period of 3 months against the institution or continuation of suits or any other proceedings by any party against R1 Company or any of the group Companies in any Court of Law/Tribunal/Arbitration Panel or A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a liquidity crunch with no immediate source of funding. The said liquidity crunch has led to an inability to service the debt obligations across the R1 Company's group companies. Briefly stated, the cause of liquidity crunch arises from the chain of events which triggered across various group companies of R1 Company such as ITNL, IFIN and IEDCL simultaneously depleting the surplus funds of the corresponding group companies as also R1 Company. 6. The R1 Company has stated that ITNL has been in default on its debt obligations since 30.06.2018. R1 Company has been in default on its debt obligations since 25.08.2018. The key subsidiary of R1 Company (engaged in the financial services vertical) has been in default since 12.09.2018 and IEDCL has defaulted on its payment obligations since 22.08.2018. 7. It has further stated that apart from the defaults mentioned above, the steady decline of R1 Company became apparent from the consolidated balance sheet of R1 Company for the year 2017-18. Pertinently, net loss of ₹ 2,670 crores was reported for the year 2017-2018 and borrowings of about ₹ 91,000 crores against ₹ 6,950 crores in equity share capital and rese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution relating to financial service providers. Further, while the Central Government has the power under section 227 of IBC to notify certain categories of financial service providers who may be subject to the provisions of the IBC, no such notification has been issued by the Central Government till date. This manifests the intention the financial service providers are to be kept out of the purview of the IBC and that a separate framework is required for the resolution of such entities. The Financial Resolution and Deposit Insurance Bill, 2017 (FDI) was tabled in the Lok Sabha on 10.08.2017 is specifically for the resolution of the financial institutions including NBFCs Where as the FRDI Bill itself has been withdrawn in July 2018. The statement of Objects Reasons of the Bill demonstrates the necessity for providing a separate framework for financial service providers. 11. Further, the IBC does not provide for a joint resolution of group of companies as in the present case. The resolution of R1 Company and its group companies as a whole is inextricably linked to the resolution of each of these companies. The Companies Act, 2013 has also been amended and there is no power to wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of any legal proceedings before any Court, Tribunal, Arbitral Panel or Authority. 16. We have heard the arguments of Mr. Ravi Kadam, Sr. Counsel, Mr. Sanjay Shorey (Director - Legal Prosecution) and arguments advanced by the Sr. Counsel for Intervener Mr. Mustafa Doctor and perused the record. 17. It appears that Petitioner is seeking moratorium qua R1 Company and the group Companies, to protect the institution and continuation of any legal institution or continuation of any legal proceedings before any Court, Tribunal, Arbitral Panel or Authority. The reliefs sought by Petitioner resembles with the moratorium provided u/s 14 of the Insolvency Bankruptcy Code which provides that if the petition is admitted u/s 14 of the IBC, then moratorium order shall come into effect for the following purposes: (a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is not available in the present case because R 1 company is a financial service provider. 20. We are of the considered view that if the Petition is filed under IBC for initiating insolvency proceeding then after admission of the petition and on initiation of insolvency proceedings moratorium order under IBC becomes applicable. The Union of India's contention is that since it has not notified the financial service provider, therefore IBC is not applicable to the financial service providers for want of notification from Govt. of India. Thus they have no option except to approach this Tribunal for seeking declaration of moratorium for restructuring of debts of R1 and its group companies. 21. When a moratorium order u/s 14 of IBC is provided, then it prohibits institution or continuation of any legal proceedings against the Corporate Debtor, including execution of any judgment/decree or order in any Court of law, Arbitration Panel or other Tribunal, Arbitration Authority. The moratorium order under IBC further prevent transferring, encumbering, alienating or disposing of or by the corporate debtor or any action to foreclose, recover or enforce any security interest during ..... X X X X Extracts X X X X X X X X Extracts X X X X
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