The NCLAT held that the interim moratorium under Section 96 of the IBC was limited to the personal guarantee provided by the appellant and did not extend to the assets of the partnership firm.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed an appeal and held that the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code (IBC) is limited to debts arising from the personal guarantee of the debtor. It does not extend to the assets or liabilities of a partnership firm, even if the debtor is a partner, as the moratorium applies solely to debts and not to the debtor or the property of the firm.
An appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), challenged the order of the National Company Law Tribunal (NCLT), New Delhi Bench-VI, which had dismissed the Appellant's plea to restrain Assets Care & Reconstruction Enterprise Ltd. (ACRE) from auctioning properties under SARFAESI Act notices. The Appellant argued that the auction violated the interim moratorium under Section 96 of IBC, initiated upon the filing of a Section 95 petition against him as a personal guarantor for the debts of M/s Sahil Home Loomtex Pvt. Ltd. He contended that the dissolution of the partnership firm M/s Sheena Exports transferred its liabilities to the partners, including him, under Section 45 of the Partnership Act, and claimed that Section 238 of IBC gave overriding priority to its provisions, including Section 178, which mandates debt repayment hierarchy.
The Respondent asserted that the properties belonged to the partnership firm and not to the Appellant personally, relying on Rajendra Bajoria and Others v. Hemant Kumar Jalan and Others, REEDLAW 2021 SC 09007 and Onkar Rice Mill v. State of UP. They argued that actions under the SARFAESI Act targeted the firm’s assets, which were distinct from the Appellant’s personal obligations, rendering the interim moratorium inapplicable. The NCLAT reviewed Sections 95, 96, and 178 of IBC in conjunction with partnership laws and found that the interim moratorium under Section 96 was restricted to debts tied to the Appellant's personal guarantee and did not extend to the firm’s liabilities or assets. The Tribunal clarified that the Appellant’s personal guarantee was independent of the firm’s obligations, and the dissolution notice did not alter the legal distinction between personal and firm liabilities.
Relying on the Supreme Court's observations in Dilip B. Jiwrajka v. Union of India and Others, REEDLAW 2023 SC 11575, the NCLAT emphasized that the interim moratorium operates on debts, not the debtor, and serves to insulate specified debts from legal action. It upheld the Respondent’s right to auction the firm’s assets under the SARFAESI Act, affirming that the moratorium under Section 96 did not apply to the partnership firm’s property. The Tribunal dismissed the appeal as meritless, maintaining that the Adjudicating Authority had correctly denied the Appellant's application to halt enforcement actions. The decision reinforced that the IBC’s overriding provisions do not alter the scope of interim moratoriums, especially where partnership assets are concerned, and upheld the legality of the Respondent’s actions without imposing any costs.
Mr. Mohit Chaudhary and Mr. Prakhar Mithal, Advocates represented the Appellant.
Mr. Neeraj Malhotra, Mr. R.P. Agrawal, Ms. Reema and Mr. Nimish Kumar, Advocates appeared for the Respondent.
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