Section 14(1)(a) of IBC not applicable to proceedings beneficial to corporate debtor, Delhi HC

The Delhi High Court recently ruled that Section 14(1)(a) of the Insolvency and Bankruptcy Code (IBC), 2016 would not apply to proceedings which are beneficial to the corporate debtor..Section 14 (1) (a) of the Code provides that,.“The Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:.(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;”.The Court was hearing a petition by Power Grid Corporation of India Ltd seeking to set aside an arbitral award in the nature of a pure money decree in favour of the respondent Jyoti Structures Ltd..The question arose whether the proceedings under Section 34 of the Act need to be stayed, as per Section 14(1)(a) of the Code..The respondents, represented by Advocates Ashim Sood, Payal Chandra, Dhruv Sood and Rhythm Buaria, submitted that if the proceedings are stayed, they would be unable to execute the award given in their favour for an extended period till the moratorium exists and will be unable to recover the dues, thereby further impeding their financial condition. Senior Advocate KK Rai appeared for the petitioners..The Single Judge Bench of Justice Yogesh Khanna observed that,.“Stay of proceedings against an award in favour of the corporate debtor would rather be stalking the debtor’s effort to recover its money and hence would not fall in the embargo of Section 14 (1) (a) of the Code.”.The Court noted that the object of the Code is to provide relief to the corporate debtor through a period during which its assets are protected from dissipation or diminishment, and as a corollary, during which it can strengthen its financial position..Further, extending of the unexecutability of the award would rather prevent the corporate debtor from recovering money due to it. Such a consequence would in fact be directly contrary to the object of the Code..It was further observed by the Bench that,.“The report of the Bankruptcy Law Reforms Committee on the rationale and design of the Code also demonstrates the moratorium is to apply to recovery actions and filing of new claims against the corporate debtor and the purpose behind moratorium is there should be no additional stress on the assets of the corporate debtor.”.The Court finally held that:.‘Proceedings’ under Section 14 (1) (a) do not mean ‘all proceedings’Moratorium under section 14(1)(a) of the code is intended to prohibit debt recovery actions against the assets of corporate debtor.Continuation of proceedings under section 34 of the Arbitration Act which do not result in endangering, diminishing, dissipating or adversely impacting the assets of corporate debtor are not prohibited under section 14(1)(a) of the code.The continuation of these proceedings shall cause no harm to either party’s rights to seek determination of issues under section 34 of the Act and object of the code shall be preserved rather than defeated..Read Judgment: