NCLAT to decide whether moratorium will continue despite stay on insolvency proceedings

The National Company Law Appellate Tribunal (NCLAT) is slated to examine a plea which raises the question of whether a moratorium on parallel proceedings or transactions concerning a debt-ridden company will continue to operate despite there being a stay on an order admitting such a company to the Corporate Insolvency Resolution Process (CIRP). .Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) deals with the power of adjudicating authority (National Company Law Tribunal/ NCLT) to issue a moratorium when admitting a company to the insolvency resolution process. Once a moratorium is imposed, the creditors of the company can recover their debts only through the procedure under IBC. .The NCLAT Bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra on October 29 issued notice in a case pertaining to Siti Networks limited. The company was admitted to CIRP by the NCLT in Mumbai on February 22 2023. However, in March 2023, the NCLAT stayed the order. After the NCLAT stay, a new management team took over the company and informed its financial creditors about this change..The Supreme Court refused to entertain an appeal against the NCLAT order granting interim stay. In the meantime, Axis Bank, which is one of the financial creditors of the company, adjusted certain amounts towards its debt from its bank account. In the Joint Lenders Meetings (JLM) held subsequently, other lenders objected to this contending that all of them had pari passu (equal) charge on the funds available with the company. Axis Bank also released certain funds to a few other creditors, till the NCLAT in June 2023 directed it not to withdraw funds from the company’s account. On August 10 2023, the NCLAT dismissed the appeal challenging the company’s admission to the CIRP. As a consequence of this, an Interim Resolution Professional (IRP) took over the affairs of the company. The RP sought for a clarification on the commencement date of the CIRP i.e. February 22, 2023 or August 10, 2023. .On October 1, 2023, the NCLT held that February 22. 2023, was the commencement date of CIRP. The NCLT further directed that all transactions made between February 2023 and August 2023 be reversed in four weeks, as a consequence of which, Axis Bank was directed repay the amounts it had adjusted. The order in effect held that moratorium would continue even if there is a stay of the order admitting a company to CIRP. Aggrieved by this order, Axis Bank and other creditors approached the NCLAT. The appellate tribunal, on hearing the plea, issued notice and agreed to hear it at length in December. The NCLAT modified the NCLT's order and directed Axis Bank and other creditors to deposit the money they had adjusted in an interest bearing account. “We having already issued notices in the Appeals and fixed a date for hearing, are of the view that the ends of justice be served in directing the Axis Bank and other lenders, who are Appellants before us, to keep the amount which is to be reversed under the impugned order in a separate interest bearing account so that in the event amount is finally decided to be reversed the interests of the corporate debtor are protected,” NCLAT's October 29 order said. The case is now expected to be heard on December 3. Axis Bank was represented by Senior Advocate Arun Kathpalia and Advocate Abhinav Vashisht with Advocates Manmeet Singh, Bhavika Deora, Advocates..[Read Order]