High Court of Kerala

Jeny Thankachan vs. Union of India

MANU/KE/3186/2023

17.11.2023

Insolvency

For an interim or final moratorium under Section 96 of IBC to come into force, application filed by debtor should be complete in all respects and without any procedural defects

The Petitioner who is a sleeping partner in the 3rd respondent-Limited Liability Partnership Firm, seeks to declare that the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) shall have overriding effect over the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, since insolvency resolution and bankruptcy for individuals and Partnership Firms have come into force with effect from 15.11.2019 by virtue of Notification.

The operation of interim and final moratorium under Sections 96 and 101 of the IBC 2016 have serious repercussions. Legal actions and proceedings pending against the debtor will be deemed to have been stayed and the creditors of the debtor will not be able to initiate any legal action proceeding in respect of any debt of the debtor., once an application is filed. Therefore, the provisions of Sections 96 and 101 will have to be strictly construed. Therefore, for an interim or final moratorium under Section 96 to come into force, the application filed by the debtor should be complete in all respects and without any procedural defects.

In the case of the petitioner herein, the petitioner has only uploaded application, which by itself cannot be treated as filing of an application as contemplated by Section 96. 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 defect less and devoid of any procedural lapses.

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. 27.

The argument of the petitioner that the IBC 2016 shall have overriding effect over the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 cannot be of any avail to the Petitioner. It is true that in view of Section 238 of the IBC 2016, the IBC 2016 will have overriding effect. But, Section 238 of the IBC 2016 cannot oust the operation of the Act, 2002 for the reason that the IBC, 2016 and the Act, 2002 operate in different fields. Therefore, unless there is any repugnancy between the provisions of the IBC 2016 and the provisions of the Act, 2002, there is no question of IBC 2016 overriding the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 in totality.

In the judgment in State Bank of India v. Ramakrishnan and another, the Apex Court has held that, the protective provisions of IBC, 2016 are not applicable to a personal guarantor of a corporate debtor. The securitisation proceedings against personal guarantors of corporate debtors can continue under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Therefore, initiation of a Section 94 (IBC 2016) proceedings by a Partner of an LLP in his capacity as a guarantor, cannot be averted to the proceedings initiated by the Bank against the Petitioner, but in his capacity as a guarantor, under the Act, 2002. Petition dismissed.

Tags : Proceedings Provision Applicability

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