LI Network
Published on: November 19, 2023 at 13:31 IST
The Kerala High Court, in a recent judgment, has clarified that the mere uploading of an application under Section 96 of the Insolvency and Bankruptcy Code (IBC), 2016, cannot be considered as the filing of an application for the interim moratorium to take effect.
The court emphasized that the provisions under Sections 96 and 101 of the IBC, which deal with interim and final moratoriums, respectively, should be strictly construed due to their significant implications on legal proceedings against debtors.
Justice N. Nagaresh explained that the legal consequences, such as the stay of legal proceedings and the inability of creditors to initiate debt recovery actions, make it crucial to interpret Section 96 strictly.
The court specified that the filing of an application should be flawless, devoid of procedural lapses, and only considered legal and acceptable when duly numbered by the adjudicating authority.
The case involved a petitioner, a sleeping partner in a Limited Liability Partnership (LLP), who had availed a loan from a bank. After defaulting on the loan, the bank initiated recovery proceedings under the SARFAESI Act.
The petitioner then initiated insolvency resolution proceedings under Section 94 of the IBC. The court, however, dismissed the petitioner’s claim that the SARFAESI Act proceedings should be stayed under Section 96(b) of the IBC, emphasizing the importance of a properly filed application for the interim moratorium to take effect.
The court noted that the petitioner had only uploaded the application, and until it is duly numbered by the National Company Law Tribunal (NCLT), the interim moratorium cannot come into operation.
The court also rejected the petitioner’s argument regarding the overriding effect of the IBC over the SARFAESI Act, stating that there must be repugnancy between the two acts for such an override to occur.
The plea was ultimately dismissed, and the court clarified the requirements for a valid filing under Section 96 of the IBC.
Case Title: Jeny Thankachan v. Union of India & Ors.
