IBC| Mere Uploading Of Application U/S 96 Cannot Be Regarded As 'Filing' For Interim Moratorium To Operate: Kerala High Court

The Kerala High Court on Friday laid down that mere uploading of an application under Section 96 of the Insolvency and Bankruptcy Code (IBC), 2016, cannot be regarded as filing of an application for the interim moratorium to operate. 

Section 96 of IBC provides that when an application is filed under Section 94, an interim moratorium shall commence on the date of the application in respect to all the debts and shall cease to have effect on the date of admission of such application.

Justice N. Nagaresh explained that the operation of interim and final moratorium under Sections 96 and 101 of the IBC 2016 have serious repercussions, as the legal proceedings against would be deemed to have been stayed and creditors of the debtor would not be able to initiate any legal action proceeding in respect of any debt of the debtor, once an application is filed. The Bench thus said that such provision would have to be strictly construed. 

"In view of the serious consequences that will follow on filing of an application under Section 96 by a debtor, on the creditors who will be disabled and disentitled from initiating or proceeding with any debt recovery legal mechanism, Section 96 should be construed strictly. Mere uploading of an application under Section 96 of the IBC 2016 cannot be taken as filing of an application. The filing of an application as contemplated under Section 96 should be defectless and devoid of any procedural lapses. Only when an application is filed without any defects and satisfying the statutory procedural requirements of filing and only when the adjudicating authority numbers the application, there can be a legal and acceptable filing of application," it observed. 

The petitioner who is the sleeping partner in a Limited Liability Partnership (LLP), had availed a loan of Rs. 65,10,000/- from the Bank. The LLP later defaulted in repayment of the loan and the account of the partnership was rendered NPA.

The Bank thereafter initiated recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

The petitioner subsequently initiated insolvency resolution process under Section 94 of the IBC 2016 before the adjudicating authority / National Company Law Tribunal, Kochi Bench, which was accepted by the latter. 

However, the petitioner averred that it was despite the initiation of insolvency proceedings, that the Bank resorted to coercive proceedings under the SARFAESI Act. 

It was contended by the petitioner that any action to foreclose, recover or enforce any security interest under the SARFAESI Act would be deemed to have been stayed and any legal action or proceedings in respect of any debt shall be deemed to have been stayed as per Section 96(b) of the IBC 2016, pursuant to his filing of the application under Section 94 of IBC. He added that the provisions of IBC would have overriding effect over that of the SARFAESI Act, and the steps pursuant to securitisation proceedings under the SARFAESI Act could not legally proceed. 

Standing Counsel for IndusInd Bank Renjith R. argued that  the application stated to have been filed by the petitioner under Section 94 of the IBC 2016 had not been admitted by the NCLT, and no regular case number had been assigned by the Tribunal. It was also submitted that as per the decision in State Bank of India v. B. Ramakrishnan(2018), the Apex Court had laid down that the moratorium on admission of insolvency petition would not be extended to the personal guarantor of the corporate debtor. 

The Court noted that as per the provisions of the IBC, when an application is filed under Section 94, an interim moratorium shall commence on the date of the application in respect to all the debts and shall cease to have effect on the date of admission of such application. Section 101 further stipulates that during the moratorium period, any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed. 

The Court was faced with the question as to whether the filing of the application by the petitioner would by itself result in an interim moratorium as contemplated under Section 96. 

Here, it noted that in view of the serious repercussions that Sections 96 and 101 entail, for an interim or final moratorium under Section 96 to come into force, the application filed by the debtor ought to be complete in all respects and be without any procedural defects. 

The Court observed that since the petitioner had only uploaded the application in the present case, that by itself could not be equated to filing of an application as provided under Section 96 of IBC. 

"In the case of the petitioner, admittedly the NCLT has not treated the application as a valid application by assigning regular case number to the application. As long as the petitioner's application is not duly numbered by the NCLT, the interim moratorium contemplated under Section 96(1)(b)(i) cannot come into operation. Therefore, the petitioner is not entitled to contend that the respondents cannot go ahead with the securitisation proceedings," it observed. 

The Court also dismissed the petitioner's contention regarding the overriding effect of IBC over the SARFAESI Act, and observed that unless there is any repugnancy between the provisions of the IBC 2016 and the SARFAESI Act, there would not be any question of the provisions of the IBC overriding the SARFAESI Act. 

It further added that the initiation of a Section 94 (IBC 2016) proceedings by a Partner of an LLP in his capacity as a guarantor, could not be averted to the proceedings initiated by the Bank against the petitioner, but in his capacity as a guarantor, under the SARFAESI Act. 

The plea was tus dismissed. 

The petitioner was represented by Advocates Shaji Chirayath, Jiji M. Varkey, M.K. Safeela Beevi, Savitha Ganapathiyatan, and M.M. Shajahan. Deputy Solicitor General of India S. Manu also appeared on behalf of the respondents. 

Citation: 2023 LiveLaw (Ker) 665

Case Title: Jeny Thankachan v. Union of India & Ors. 

Case Number: W.P.(C) No. 31502 of 2023 

Click Here To Read/Download The Judgment