Proceedings endangering, diminishing, dissipating or adversely impacting the assets of corporate debtor are not prohibited under section 14(1)(a) of the IBC

In a matter titled as Power Grid Corporation of India Vs. Jyoti Structures Limited, being OMP (COMM) 397/2016, decided on 11th December, 2017, Delhi High Court held that extending the moratorium to such proceedings 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 hence such an interpretation could not be given to Section 14 of IBC.

 

 

Challenge

Whether proceedings initiated under Section 34 of the Arbitration and Conciliation Act, 1996,  in regard to an Arbitration Award in favour of Corporate Debtor, need to be stayed, as per Section 14 (1)(a) of the Insolvency and Bankruptcy  Code, 2016 (IBC) ?

 

Held

Delhi High Court held that the object of the I B C 2016 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. Extending the moratorium to such proceedings 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 hence such an interpretation could not be given to Section 14 of IBC.

The High Court further observed:

  • ‘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