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Moratorium Under IBC Continues Despite Interim Stay; NCLAT Orders Reversal of Lenders' Appropriations During CIRP Stay Period

The NCLAT held that the moratorium under the IBC remains in effect despite an interim stay, ordering lenders to reverse appropriations made during the CIRP stay period.


The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra reviewed a bunch of miscellaneous appeals and observed that the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) remained effective from the insolvency commencement date of 22.02.2023, despite any interim stays on proceedings, thus requiring all transactions and fund appropriations by lenders during the stay period to be reversed to protect the corporate debtor’s estate. The Adjudicating Authority emphasized that the commencement date could not be altered, and all CIRP-related actions must be reckoned from 22.02.2023.


In this case, multiple appeals were filed against a single order issued by the National Company Law Tribunal (NCLT), Mumbai Bench, Court III, on October 1, 2024, in various interim applications related to Siti Networks Limited. The appeals involved financial creditors of the Corporate Debtor, as well as the Corporate Debtor’s Resolution Professional. The NCLT had previously commenced the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor on February 22, 2023, following an application under Section 7 of the Insolvency and Bankruptcy Code (IBC). Subsequently, an interim order from the NCLAT in March 2023 stayed the CIRP, which led the board of management to resume control over the Corporate Debtor’s operations.


During this period, certain lenders, including Axis Bank, appropriated funds from the Corporate Debtor’s accounts for outstanding dues, citing contractual rights. In response, objections were raised by other lenders, and a series of applications ensued, seeking clarification on the validity of such appropriations during the interim stay. The suspended director, along with other stakeholders, contested the legitimacy of these fund withdrawals, arguing they contradicted the moratorium provisions under Section 14 of the IBC. As the CIRP progressed, NCLT dismissed applications to set aside the insolvency commencement date and to recognize an alternative cut-off date for CIRP-related activities. It also directed that any appropriations made during the CIRP stay period be reversed, returning funds to the Corporate Debtor's account.


The NCLAT, hearing the appeals, addressed the lenders' argument that the NCLT’s moratorium had effectively ceased with the interim stay, which in their view permitted fund appropriations. However, the tribunal noted that moratorium provisions remained intact from the initial commencement date and that any transactions conducted during the stay would still be subject to reversal, thereby protecting the Corporate Debtor’s assets in alignment with the IBC framework. The Resolution Professional also raised concerns regarding procedural fairness, contending that adverse findings by the NCLT were prejudicial. On the other hand, ARCIL and the suspended management asserted that moratorium provisions under the IBC superseded the interim stay, rendering all fund appropriations improper.


The case was listed for 03.12.2024 at 2.00 P.M. for hearing and disposal.


Mr. Abhinav Vashisht, Mr. Arun Kathpalia, Sr. Advocates with Mr. Manmeet Singh, Ms. Bhavika Deora, Advocates represented the Appellant.


Mr. Dhruv Mehta, Mr. Sunil Fernandes, Sr. Advocates with Mr. Kaustubh Prakash, Ms. Hita Sharma, Ms. Prachi Bhatia, Ms. Tanya Singh, Ms. Keith Varghese, Ms. Rajshree Chaudhary, Ms. Diksha Dadu, Advocates appeared for Respondent No. 1.


Mr. Kunal Tandon, Ms. Richa Sandilya, Ms. Natasha Singh, Advocates represented the Star India Pvt. Ltd.


Mr. Anand Varma, Ms. Apoorva Pandey, Ms. Aayushi Khurana, Advocates appeared for Respondent No. 7.


Mr. Amarjeet Singh Chandhiok, Sr. Advocate with Ms. Pooja Mahajan, Ms. Mahima Singh, Mr. Karamvir Khosla, and Mr. Srivatsava Reddy Beerapalli, Advocates represented the RP.


Mr. Krishnendu Datta, Sr. Advocate with Mr. Bishwajit Dubey, Mr. Kaustubh Rai, Mr. Aman Varma, Ms. Niharika Sharma, Ms. Riya Wasade and Mr. Karan Khetani, Advocates appeared for Respondent No. 10.


 

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