Moratorium Under Section 14 Of Insolvency And Bankruptcy Code, 2016 Is No Bar For Initiation Of Proceedings Under Section 66 Of The Code: NCLAT

NCLAT held that Section 14 and Section 66 are independent provisions incorporated for different purposes and therefore, these provisions have to be read independently to achieve the objective of the Code.

Brief Background

A Petition under Section 7 of the Code was filed against HBN Foods Ltd. (Corporate Debtor) and CIRP was initiated and Mr. Jagdish Singh Nain was appointed as the Resolution Professional. During the inspection of the balance sheets of the Corporate Debtor, the Resolution Professional found that there are various transactions carried out between 2013-14 to 2018-19 with the intent to defraud the creditors of the Corporate Debtor.

Accordingly, the Resolution Professional filed an application under Section 66 of the Code against various related parties of the Corporate Debtor which also includes companies like HBN Home Colonizers Pvt. Ltd which was also undergoing CIRP and a moratorium under Section 14 of the Code was also imposed concerning HBN Home Colonizers. The NCLT vide its order dated 13.12.2021 allowed the Section 66 Application and directed the Respondents including the Resolution Professional of HBN Home Colonizers to make contribution of INR 2687.27 Crores jointly or severely.

Aggrieved by the order of NCLT, the Resolution Professional of HBN Home Colonizers filed an appeal before the NCLAT under Section 61 of the Code.

Contentions by Appellant

The Appellant contended that the CIRP is already initiated against the HBN Home Colonizers vide order dated 24.07.2019 and therefore, by the virtue of moratorium imposed under Section 14 of the Code, no proceedings could be initiated against the HBN Home Colonizers for any fraudulent transactions under Section 66 of the Code.

Contentions of Respondent

It was contended on behalf of the Respondent that the Appellant despite being afforded numerous opportunity did not appear before the NCLT and therefore, the Appellant is not competent of file the present appeal before this Appellate Tribunal in the absence of pleadings.

It was further contented on behalf of the Respondent that the NCLT has the power under Section 60(5) of the Code to adjudicate such issues pertaining to the fraudulent transactions during the moratorium imposed under Section 14 of the Code.

Question Framed by NCLAT

After hearing the parties, NCLAT formed the point of law as follows;

"Whether the Adjudicating Authority is competent to pass order under Section 66 of IBC during currency of moratorium under Section 14 of IBC? If, so whether the order in I.A. No. 2844/2020 dated 13.12.2021 is sustainable?"

Analysis/Decision by NCLAT

NCLAT noted the provisions of Section 14 of the Code and held that Section 14 prohibits institution and prosecution of proceedings against the Corporate Debtor but does not prohibit proceedings against the Resolution Professional of the Corporate Debtor.

Furthermore, the Bench observed that both the provisions are independent in nature and incorporated for different purposes and thus, they should be construed harmoniously to give effect to the intendment of the Code and to make it workable.

NCLAT also held that the order for making payment of INR 2687.27 Lacs was passed against the Appellant in its capacity as a Resolution Professional and not a corporate debtor and hence, there is no illegality in the order passed by NCLT.

Accordingly, NCLAT upheld the order passed by NCLT and dismissed the appeal.

Case Details: Rakesh Kumar Jain v. Jagdish Singh Nain & Ors.

Counsel for Appellant: Mr. Mohit Nandwani

Counsel for Respondent: Mr. Abhishek Naik & Ms. Gulfasha Qureshi

Click Here To Read/Download Order