Bombay High Court Quashes Consumer Commission's Order Against SREI Equipment Finance Amidst Insolvency Proceedings

Nagpur Bench rules that moratorium under Insolvency and Bankruptcy Code prohibits recovery proceedings against the corporate debtor.

In a significant ruling, the Bombay High Court's Nagpur Bench has quashed the orders of the District Consumer Dispute Redressal Commission, Akola, which directed SREI Equipment Finance Limited to return a repossessed JCB machine to respondent Rajesh Bajirao Khandewar. The court held that such proceedings violated the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IB Code).

The case arose when SREI Equipment Finance Limited, undergoing insolvency resolution, was challenged by Rajesh Bajirao Khandewar in the District Consumer Commission. Khandewar had alleged unlawful repossession of a JCB machine by the company's employees due to non-payment of installments. Despite a moratorium imposed by the National Company Law Tribunal (NCLT), the Consumer Commission had initially ordered the return of the machine upon payment of dues.

Justice M.M. Nerlikar, presiding over the matter, emphasized that once a moratorium is declared, no suits or proceedings can continue against the corporate debtor, as per Section 14 of the IB Code. The resolution plan, approved by the NCLT in August 2023, further solidified this prohibition, rendering the Consumer Commission's orders unenforceable.

The court noted that the petitioner's company was not a party in the original complaint, thus the order could not bind the new management under the resolution plan. Furthermore, the court quashed bailable warrants issued against the company's owner and CEO, reinforcing the protection offered by the IB Code during insolvency proceedings.

The ruling highlights the supremacy of the IB Code in insolvency matters, ensuring that recovery proceedings are halted to facilitate an effective corporate insolvency resolution process. The court's decision protects the integrity of the insolvency process, preventing actions that could undermine the approved resolution plan and the rights of the stakeholders involved.

Bottom Line:

• Proceedings initiated against a corporate debtor, including recovery proceedings, are prohibited once a moratorium under Section 14 of the Insolvency and Bankruptcy Code (IB Code) is declared or a resolution plan under Section 31 is approved by the Adjudicating Authority.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 14, 31; Consumer Protection Act, 2019 Sections 2(1)(g), 2(1)(r).

SREI Equipment Finance Limited v. Rajesh Bajirao Khandewar, (Bombay)(Nagpur Bench) : Law Finder Doc Id # 2796270