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TMI Blog2024 (10) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... KC for standing as a personal guarantor for repayment of operational debt owed by M/s Sahil Home Loomtex Pvt Ltd. following which resolution process had commenced. Clearly, therefore, it is the personal guarantee of the Appellant against which the Section 95 has been invoked and not against the property of the partnership firm. The use of the expression all the debts and any debt are phrases with a very wide amplitude and it clearly covers debts other than the debt basis which moratorium has commenced. Though encompassing in nature, the moratorium relates only to the specific debt and not to the debtor. In addition, we notice the use of the phraseology of creditors of the debtor in Section 96(1)(b)(ii) which obviously refers to other creditors of the debtor apart from the creditor on whose application interim moratorium has commenced. Thus, the interim moratorium under Section 96(1)(b)(ii) creates a prohibition on the other creditors of the debtor from initiating any legal action in respect of the debt for which Section 95 has been initiated. In the present facts of the case, the moratorium imposed under Section 96 of IBC would apply only to the security interest created by the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hit Chaudhary, Ld. Counsel appearing for the Appellant and Shri Neeraj Malhotra, Ld. Senior Counsel representing the Respondent. 3. The Ld. Counsel for the Appellant outlining the facts of the case submitted that a Company Petition under Section 95 of the IBC was filed by Operational Creditor-White Line Enterprises against Mr. Ramesh Kumar Chugh-Appellant who stood as a Personal Guarantor for repayment of the operational debt owed by M/s Sahil Home Loomtex Pvt. Ltd. With the filing of Section 95 petition on 22.12.2023, interim moratorium under Section 96 of IBC commenced and an Interim Resolution Professional was appointed in the Section 95 proceedings vide order dated 12.02.2024 of the Adjudicating Authority. The Appellant-Mr. Ramesh Kumar Chugh ( RKC in short) was also a partner in a partnership firm named M/s Sheena Exports which firm had availed of loan facilities from HSBC and Citi Bank. The Appellant was also a Guarantor to loan facilities given by PNB and IDBI to M/s Sheena Textile Ltd. ( STL in short). Subsequently, HSBC, Citi Bank, PNB and IDBI had assigned the loans given to M/s Sheena Exports and STL along with underlying securities in favour of Respondent-Assets Care Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to all the debts and during the interim moratorium period any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed and the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. Though the initiation of moratorium was intimated to the Respondent, the Respondent has proceeded ahead in dealing with the assets of the Appellant in violation of Section 96 of IBC. It was submitted that the Appellant had therefore filed an application before the Adjudicating Authority to direct the Respondent to withdraw the notices issued under Rule 8(6) of Security Interest (Enforcement Rules) and to restrain them from taking any further action pursuant to these notices in respect of property put to auction which has been erroneously dismissed by the Adjudicating Authority. 7. Refuting the contentions of the Appellant, the Ld. Sr. Counsel for the Respondent submitted that the Respondent had filed four Original Applications before the Debt Recovery Tribunal (DRT), New Delhi. All the four OAs have been decreed and Recovery Certificates were issued. The outstanding amount in the four OAs is about Rs 200 Cr. and Recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected with Section 95 application hence the question of applicability of interim moratorium does not arise. 10. It is also the contention of the Respondent that the Appellant has concealed from the Adjudicating Authority the material fact that two Securitization Application Nos. 17/2024 and 18/2024 have been filed before the DRT-II, New Delhi, challenging the sale notices dated 15.02.2023. It was therefore contended that the Appellant is indulging in forum shopping which is an abuse of the process of law. In SA 17/2024, the stay application has already been dismissed on 14.08.2024 and the remedy therefore lies by way of appeal to DRAT and not before the NCLT. 11. We have duly considered the arguments advanced by the Learned Counsel for both the parties and perused the records carefully. 12. The primary question before us for consideration is whether in the backdrop of Section 95 proceedings under IBC having been initiated against the Appellant in his personal capacity as a personal guarantor, can the Respondent be barred from conducting sale of the subject property , belonging to a partnership firm (under dissolution), in which the Appellant is a partner, on grounds of operation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of Appellant in his personal capacity. It has been contended by the Respondent that as they are not taking any action either against Appellant or against any of his personal properties, the interim moratorium cannot apply to the subject property which has no bearing with the personal guarantee of the Appellant. 15. In support of their contention, the Respondent has relied on two judgements. One of them is the Bajoria judgement supra of the Hon ble Apex Court wherein it has been held : It is trite law that the partners of a firm are entitled only to the profits of the firm and upon dissolution of the firm they are entitled to the surplus of the sale proceeds of the assets and properties of the firm, if any, after meeting the liabilities of the firm, in the share agreed upon in the partnership deed. The partners do not have any right, title or interest in respect of the assets and properties of a firm so long as the firm is carrying on business. Hence, the plaintiffs as legal heirs of some of the original partners cannot maintain any claim in respect of the assets and properties of the said firm. Their prayer for declaration of co-ownership of the assets and properties of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings in respect of any debt. (2) Where the application has been made in relation to a firm, the interim - moratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the application. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. We have already noticed that by the order of the Adjudicating Authority dated 12.02.2024, interim moratorium had commenced from the date of Section 95 application which is 22.12.2023. 19. Going deeper into the provisions of Section 96(1)(a), we find that it provides that interim-moratorium shall commence on the date of the application in relation to all the debts . This is reinforced by Section 96(1)(b) which lays down that during the moratorium period (i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt . The use of the expression all the debts and any debt are phrases with a very wide amplitude and it clearly covers debts other t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 95 triggers the interim moratorium which then ceases to have effect on the date of the admission of the application (under section 100). The consequences which flow from an interim moratorium are specified in clause (b) of subsection (1) of section 96. The impact of the interim-moratorium under section 96 is that a legal action or proceeding pending in respect of any debt is deemed to have been stayed and the creditors or the debtors shall not initiate any legal action or proceedings in respect of any debt. The crucial words which are used both in clause (b)(i) and clause (b)(ii) of subsection (1) of section 96 are in respect of any debt . These words indicate that the interim-moratorium which is intended to operate by the Legislature is primarily in respect of a debt as opposed to a debtor. Clause (b) of subsection (1) indicates that the purpose of the interim moratorium is to restrain the initiation or the continuation of legal action or proceedings against the debt. 58. This must be contra-distinguished from the provisions for moratorium which are contained in section 14 in relation to the corporate insolvency resolution process under Part II. Section 14(1)(a) provides that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned by them. In the present case it is manifestly clear that the personal guarantee given qua the debt owed by Sahil Home Loomtex to White Line Enterprises was personal to the Appellant and not a guarantee given by the partnership firm. We have also noticed the dissolution notice of the partnership firm was sent by RKC on 06.02.2024 to the other 3 original partners as may be seen at page 341 of the APB. The Notice of Dissolution only mentions about dissolving the partnership so that the assets/liabilities can be distributed in appropriate shares as per the Partnership Agreement/Deed and makes no mention of the Section 95 application though the same was clearly filed prior to the notice of dissolution of the partnership deed. It would be misconstrued to infer that merely because notice for dissolution of the partnership firm was given by the Appellant entailing the devolution of liabilities of the partnership on the partners, that the partnership firm can in turn be said to be saddled with the liabilities arising out of the personal guarantee of the Appellant. 24. Now coming to the judgements relied upon by the Respondent, we are fully in agreement with the proposition of law la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. This non-obstante clause of Section 238 makes the IBC prevail over any other law for the time being in force. Be that as it may, we are not persuaded by the contention of the Appellant that since Section 178 of the IBC gives priority to the payment of debts of the partnership firm over personal debts, it would prevail over the Partnership Act and sale of the subject property if permitted under Security Interest (Enforcement Rules), would tantamount to violation of the provisions of moratorium under Sections 96 and 178 of IBC. In the present case, when we have come to the considered view that interim moratorium has come into play only with respect to the personal guarantee of the Appellant as personal guarantor and not of the partnership firm, we find no good grounds for the Adjudicating Authority to have entertained the application of the Appellant to withdraw the notice issued under Rule 8(6) of Security Interest (Enforcement Rules) and restrain the Respondent from taking further action on these notices with respect to subject property having been put to auction. ..... 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