Brief about decision:

Moratorium shall prohibit the action against the properties reflected in the Balance Sheet of the Corporate Debtor – The Moratorium has no application on the properties beyond the ownership of the Corporate Debtor.

Analysis of Case:

Section 10 of the Insolvency and Bankruptcy Code, 2016 – Initiation of corporate Insolvency resolution process by Corporate applicant

Facts:

The main issue before the Tribunal was that “whether a property(ies) which is/are not ‘owned’ by a Corporate Debtor shall come within the ambits of the Moratorium?
In the instant case the personal properties of the promoters have been given as security to the banks while taking loans.

Decision of the Tribunal:

This code of 2016 has prescribed certain limitations which are inbuilt and must not be overlooked. The “Moratorium” indeed is an effective tool, sometimes being used by the corporate debtor to thwart or frustrate the recovery proceeding.

The plain language of the Section 14 is that on the commencement of the Insolvency process the ‘Moratorium’ shall be declared for prohibiting any action to recover on enforce any security interest created by the Corporate Debtor in respect of “its” property. Relevant section which needs in-depth examination is section 14 (1) (c) of The Code.

There are recognised canons of interpretation. Language of the Statute should be read as it existed. This is a trite law that no word can be added or substituted or deleted from the enacted Code duly legislated. Every word is to be read and interpreted as it exists in the statute with the natural meaning attached to the word. Rather in this Section the language is so simple that there is no scope even to supply ‘casus omissus’. I hasten to add that the doctrine of ‘ Noscitur a Sociis’ is somewhat applicable that the associated words take their meaning from one another so that common sense meaning coupled together in their cognate sense be interpreted. As a result, “its” denotes the property owned by the Corporate Debtor. The property not owned by the Corporate Debtor do not fall within the ambits of the Moratorium. Even Section 10 is confined to the Book of the Accounts of the Corporate Debtor, due to the reason that section 10(3) has specified that the Corporate Applicant shall furnish “its” Books of Accounts. This Bench has no legislative authority to expand the meaning of the term “its” even under the umbrella of ‘Ejusdem generis’.

The outcome of this discussion is that the Moratorium shall prohibit the action against the properties reflected in the Balance Sheet of the Corporate Debtor. The Moratorium has no application on the properties beyond the ownership of the Corporate Debtor. As a result, the Order of the Hon’ble Court directing the Court Commissioner to take over the possession shall not fall within the clutches of Moratorium. Even otherwise, the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (the SARFAESI Act) may be having different criteria for enforcement of recovery of outstanding Debt, which is not the subject matter of this Bench. Before I Part with it is necessary to clarify my humble view that The SARFAESI Act may come within the ambits of Moratorium if an action is to foreclose or to recover or to create any interest in respect of the property belonged to or owned Debtor, otherwise not.

The Application under section 10 of the Code is hereby “Admitted”.

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2 comments

  1. Moratorium shall prohibit the action against the properties reflected in the Balance Sheet of the Corporate Debtor – The Moratorium has no application on the properties beyond the ownership of the Corporate Debtor- Schweitzer Systemtek India (P) Ltd. Vs. Phoenix ARC (P) Ltd.- NCLT, Mumbai Bench
    In view of the above why moratorium will not apply on the subsidiary of holding company as investment in SPV or subsidiary is reflected in the balance sheet of holding company .lender to holding company can lay its hand on cash flows and assets financed out of equity invested in SPV by holding company

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