Section 96(1)(B) Of IBC Does Not Stay Any Future Liability Or Obligation: NCLAT Delhi

Background Facts

On 05.09.2019, Advance Home and Personal Care Ltd. ("Corporate Debtor") was admitted into Corporate Insolvency Resolution Process ("CIRP") by the Adjudicating Authority under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC").

On 04.12.2019 the Interim Resolution Professional ("IRP") filed an application under Section 19(2) of IBC against Mr. Ashok Mahindru and one another ("Appellants"), who were Suspended Directors of the Corporate Debtor. Thereafter, on 23.07.2020 the Resolution Professional filed an application under Section 66 and 67 of IBC.

The Appellants were also Personal Guarantors for one another company named Advance Surfactants India Ltd. On 06.12.2021 and 07.12.2021, proceedings under Section 95 of IBC were initiated against the Appellants as a Personal Guarantor for Advance Surfactants India Ltd. Consequently, the interim moratorium under Section 96 of IBC commenced in the said proceedings. The Appellants filed an application in the Section 9 of IBC proceedings against the Corporate Debtor, seeking stay of proceeding under Section 19(2) of IBC as well as under Section 66 and 67 of IBC. The Adjudicating Authority rejected the application on 09.09.2022. The Appellants filed an appeal before NCLAT against the Order dated 09.09.2022.

Contentions Of Appellant

The Suspended Directors/Appellants argued that since interim moratorium had commenced in proceedings under Section 95 vide order dated 06.12.2021 and 07.12.2021, all proceedings have to be stayed. It was submitted that in proceedings under Section 19(2) and Section 66 and 67 there is possibility of any order against the Appellants in terms of monetary consideration, which may be paid by the Appellants ultimately. Hence, proceedings are required to be stayed in view of the interim moratorium.

Contentions Of Respondent

The Resolution Professional for the Corporate Debtor argued that Section 96 of IBC is stay of proceedings relating to the debt due. Section 96 never contemplated to stay the proceedings under Section 19(2) and Section 66 and 67 of IBC.

Relevant Law

Section 96 of IBC

"96. Interim-moratorium. — (1) When an application is filed under section 94 or section 95— (a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and

(b) during the interim-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."

Decision Of NCLAT

The Bench observed that the expression used in Section 96(1)(b)(i) is "any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed".

When Section 96(1)(b) is read with the definition of 'debt' in Section 3(11) of IBC, what is contemplated to be stayed is the proceeding relating to debt, which means a liability or obligation in respect of a claim which is due from any person. Interim moratorium shall be for such proceedings which relate to a liability or obligation due i.e. due on date when interim moratorium has been declared.

Section 96(1)(b) cannot be read to mean that any future liability or obligation is contemplated to be stayed. Thus, stay of proceedings under Section 19(2) and Section 66-67 is not contemplated under Section 96(1)(b) and IBC does not provide for stay of such applications. The Bench upheld the decision of Adjudicating Authority and held that no error was committed in rejecting application for stay of proceedings under Section 19(2) and Section 66-67.

The appeal was dismissed.

Case Title: Ashok Mahindru & Anr. v Vivek Parti

Case No.: Company Appeal (AT) (Insolvency) No.1324 of 2022

Counsel For Appellant: Mr. Pallav Saxena, Mr. Sorabh Dahiya, Mr. Mohd. Nauseen S., Mr. Diwakar Goel and Mr. Mohd. Abdul Wasshi, Advocates.

Counsel for Respondent: Mr. Lakshay Sawhney, Ms. Karishma Rajput and Mr. Kartik Mittal, Advocates.

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