2022 Supreme(Mad) 3633

IN THE HIGH COURT OF JUDICATURE AT MADRAS
MUNISHWAR NATH BHANDARI, N. MALA, JJ.
V.R. Swetha Naidu - Appellant
Versus
The Secretary to Government, Ministry of Corporate Affairs, New Delhi & Others - Respondent
W.P. No. 21277 of 2022
Decided On : 01-09-2022

The main legal point established in the judgment is that Section 14 of the Insolvency and Bankruptcy Code, 2016 does not apply to those proceedings where even the corporate debtor would be a gainer, apart from third party, and that a third party does not fall in the definition of 'creditor' and would be treated differently for subsisting contractual obligation to make the payment to the corporate debtor, which may be pursuant to a decree for specific performance, as a party therein does not fall within the definition of 'creditor' and thereby it will not come within the sweep of Section 14 of the Code.

Headnote:

IBC - Moratorium Applicability - Section 12, 14, 17, 30 - The court discussed the applicability of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 in respect of non-monetary obligations against the Corporate Debtor and judgments, orders or decrees such as decree for specific performance. The court also emphasized the time limit for completion of the insolvency resolution process under Section 12 and the management of affairs of the corporate debtor by interim resolution professional under Section 17. The court referred to the judgment in the case of P.Mohanraj and others v. Shah Brothers Ispat Private Limited, (2021) 6 SCC 258 to highlight the object sought to be achieved by Section 14 IBC and the purpose of the moratorium. The court concluded that Section 14 of the Code of 2016 does not apply to those proceedings where even the corporate debtor would be a gainer, apart from third party, and that a third party does not fall in the definition of 'creditor' and would be treated differently for subsisting contractual obligation to make the payment to the corporate debtor, which may be pursuant to a decree for specific performance, as a party therein does not fall within the definition of 'creditor' and thereby it will not come within the sweep of Section 14 of the Code.

Fact of the Case:

The writ petition was filed by a student pursuing Final Year of Master of Law in International Law in reference to the application of certain provisions of the Insolvency and Bankruptcy Code, 2016, specifically Sections 12 and 14. The petitioner raised concerns about the period of moratorium under Section 14 and the implication of the provision in regard to claims other than on the debt. The petitioner also highlighted the delay in completion of the insolvency resolution process and the application of moratorium to non-monetary obligations against the Corporate Debtor or judgments, orders or decrees such as decree for specific performance.

Finding of the Court:

The court found that Section 14 of the Code of 2016 does not apply to those proceedings where even the corporate debtor would be a gainer, apart from third party, and that a third party does not fall in the definition of 'creditor' and would be treated differently for subsisting contractual obligation to make the payment to the corporate debtor, which may be pursuant to a decree for specific performance, as a party therein does not fall within the definition of 'creditor' and thereby it will not come within the sweep of Section 14 of the Code. The court also held that the writ petition was not maintainable as a public interest litigation, but appreciated the work undertaken by the petitioner to seek interpretation of the provisions.

Issues: The issues raised in the case were related to the application of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 in respect of non-monetary obligations against the Corporate Debtor and judgments, orders or decrees such as decree for specific performance, and the strict adherence to the time limit for completion of the insolvency resolution process under Section 12.

Ratio Decidendi: The court's decision was based on the interpretation of the provisions of the Insolvency and Bankruptcy Code, 2016, particularly Sections 12 and 14, and the judgment in the case of P.Mohanraj and others v. Shah Brothers Ispat Private Limited, (2021) 6 SCC 258. The court emphasized that Section 14 of the Code of 2016 does not apply to those proceedings where even the corporate debtor would be a gainer, apart from third party, and that a third party does not fall in the definition of 'creditor' and would be treated differently for subsisting contractual obligation to make the payment to the corporate debtor, which may be pursuant to a decree for specific performance, as a party therein does not fall within the definition of 'creditor' and thereby it will not come within the sweep of Section 14 of the Code.

Final Decision: The writ petition was disposed of with the finding that Section 14 of the Code of 2016 does not apply to those proceedings where even the corporate debtor would be a gainer, apart from third party, and that a third party does not fall in the definition of 'creditor' and would be treated differently for subsisting contractual obligation to make the payment to the corporate debtor, which may be pursuant to a decree for specific performance, as a party therein does not fall within the definition of 'creditor' and thereby it will not come within the sweep of Section 14 of the Code. The court also held that the writ petition was not maintainable as a public interest litigation, but appreciated the work undertaken by the petitioner to seek interpretation of the provisions.