Court Directs NCLT to Adhere Strictly to Procedural Norms to Prevent Misuse of Insolvency Provisions
In a significant judgment, the Bombay High Court has set aside the orders of the Debts Recovery Tribunal (DRT) that rejected interim applications filed by M/s. Kapole Advertising Agency and others. The court ruled that an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code (IBC) is triggered upon the registration of a petition under Section 94 or 95, rather than merely on its filing. This decision comes in light of procedural lapses by the National Company Law Tribunal (NCLT) Registry, which the court criticized for failing to adhere to established protocols.
The case stemmed from a series of legal disputes between M/s. Kapole Advertising Agency and Standard Chartered Bank over debt recovery actions. The petitioners challenged the DRT's decision, arguing that the interim moratorium should halt all recovery proceedings initiated by the bank. The court found merit in the petitioners' argument, emphasizing that the interim moratorium commences by operation of law upon the registration of a petition.
The court also highlighted concerns over the misuse of the interim moratorium provisions, noting that unscrupulous parties have been exploiting procedural delays to frustrate recovery efforts by creditors. The judgment referenced a previous ruling in "Bank of Baroda v. Union of India," which outlined the procedural steps and timelines the NCLT must follow to prevent such abuses.
In its order, the Bombay High Court directed the NCLT to strictly adhere to its Standard Operating Procedure (SOP) and the court's directives to ensure timely registration and scrutiny of petitions. The court granted liberty to the respondents to approach the NCLT if they believe the interim moratorium should not apply in their case, but emphasized that further actions by creditors must wait until the moratorium ceases or the NCLT rules otherwise.
The judgment underscores the importance of procedural justice and the need for tribunals to diligently follow established guidelines to maintain fairness and prevent allegations of bias or misuse.
Bottom Line:
Interim moratorium under Section 96 of the IBC triggers upon the registration of a petition under Section 94 or 95 of the IBC, not merely on filing. Procedural compliance by the NCLT Registry is crucial to avoid misuse of the moratorium provisions.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 94, 95, 96; Debts Recovery Tribunal; National Company Law Tribunal Rules, 2016 Rule 28; Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Section 13.
