Case BriefsHigh Courts

Chhattisgarh High Court: Sam Koshy P, J., allowed the petition and quashed the impugned orders imposing a moratorium on the establishment of new Pharma colleges and institutions for 5 years.

The facts of the case are such that the petitioners are a private unaided Self Financing Institution and a part of charitable trust which has educational institutions which impart other educational courses with an intention of the opening of an institution imparting courses of Pharmacy i.e. B. Pharm (Bachelor Pharmacy courses) and D. Pharm (Diploma of Pharmacy courses) approached the PCI wherein they were informed of the impugned moratorium order. The Pharmacy Council of India i.e. PCI has put a moratorium on the opening of new Pharmacy Colleges for running Diploma as well as Degree courses in Pharmacy for a period of 5 years beginning from the Academic Session 2020-21. The validity and legality of these two orders/resolutions is under challenge in the present writ petition.

It was remarked that in the State of Chhattisgarh, there is admittedly lack of basic medical facilities and basic infrastructure required for providing the medical facilities to the general public particularly in the Semi-Urban, Rural and the Interior Areas of the State. There is an acute shortage of Doctors, Paramedical Staff and People with Pharmacy background and in the backdrop of the COVID-19 Pandemic; the State has also witnessed the alarming need and necessity of Doctors, Paramedical Staffs and People with Pharmacy background throughout the State of Chhattisgarh, particularly into the Rural and Interior Areas which are predominantly tribal belts. Thus, the State of Chhattisgarh has its own peculiar demands and necessities when it comes to issues relating to health, medical and Pharma care. Thus the blanket moratorium imposed by the PCI would further create a vacuum in the field of Pharma Care in the State of Chhattisgarh.

Reasons/ submissions for challenge

  1. If it is a regulation framed and issued by the PCI under Section 10 of Pharmacy Act, it needs to be published in an official Gazette failing which, it cannot be accepted to be a regulation in terms of Section 10, and in turn would not have a force of law.
  2. The power conferred upon the PCI to regulate the profession of Pharmacy would not automatically include the power to prohibit as well.
  3. The two orders being violative of Article 14 of the Constitution of India as it has led to ex facie discrimination particularly in the light of the relaxation that was given in the impugned order.
  4. The impugned order is violative of Article 19(1) (g) of the Constitution of India as it infringes the right of the petitioners of practicing any profession or to carry on any occupation, trade or business i.e. establishment of an educational institution in the instant case.
  5. The resolution passed by the respondent Pharmacy council is also violative of Section 10 & Section 11 of the Pharmacy Act as there has been no consultation done with Central Government or the State of Chhattisgarh or any of the State Government before imposing the said ban.

Submissions by Respondent PCI

  1. The very purpose of having the Pharmacy Act was to to regulate the institutions imparting pharmacy courses and it includes the power of prohibition in the event circumstances so require.
  2. It was a policy decision of the PCI to impose moratorium and the decision was to ensure that legislative object of regulating entry into the profession of Pharmacy with minimum standard of education is fulfilled.
  3. The resolutions passed by the Pharmacy Council have been duly communicated to the Government of India, Ministry of Health who have till now not raised any objection in respect of the two resolutions.
  4. The policy decision imposing a moratorium of 5 years would itself review its decision so far as the extending of the moratorium is concerned. Since almost 2 ½ -3 years have already passed there is no scope of judicial interference at this juncture. Thus, as the moratorium is only for 5 years, it would establish that it is not an absolute prohibition.
  5. Various statutory expert bodies, officials and representatives of the Central Govt. and each of the State Pharmacy Council, each of the State Govt. have taken the decision. Therefore, for all practical purposes it has to be presumed that it has all the concurrence and approval of the Central Govt. as also of the State Govt.

The Court remarked the very object and reason behind framing of the Pharmacy Act, 1948 was to ensure that only persons with a minimum standard of professional education should be permitted to practice the profession of pharmacy.

Issue 1

Whether the two resolutions of the PCI can be considered to be regulation under Section 10 of the Pharmacy Act and if be made applicable in the entire country, then the requirement as is otherwise laid down under Section 11 has been met or not?

The plain reading of Sections 10 and 11 would clearly indicate that the regulations under Section 10 must get the approval of the Central Govt. so as to make it enforceable.

The Court observed that In the instant case admittedly there is no such official approval received from the Central Govt. at the first instance nor is there any such notification published in the official Gazette by the State Govt. In the absence of either the approval from the Central Govt. or the required notification under Section 11 by the State Govt., it would be difficult to presume that a resolution passed by the Central Council automatically becomes enforceable. It was further observed that Once when the resolutions are made applicable for the entire country, the same gets a colour of subordinate legislation and it cannot be treated as directory nor can the requirement as is envisaged under Section 10 & 11 be treated as directory.

Issue 2

Does the Pharmacy Council of India have the power to pass Regulation of the nature of moratorium for the establishment of new Colleges and Institutions imparting the pharmacy courses?

After perusing various provisions of the Pharmacy Act, it is evidently clear that nowhere does the Act empower the Pharmacy Council of India to take decisions banning the individuals in establishing new Institutions with an aim of imparting the courses relating to pharmacy or the power to ban or restrict establishment of new colleges for Pharmacy.

The Court observed that since the impugned orders create a prohibition having the effect of affecting substantive and fundamental rights enjoined with the institutions or entities intending to open new pharmacy institutions, therefore they need to derive authority from the parent enactment or the rules framed thereunder. It is trite law that whenever substantive obligation, rights or interests are being impaired or adversely affected by the decisions/orders of delegatee under enactment or through any piece of subordinate legislation, then its source must be traced within express provisions in the four corners of the parent enactment, in the absence of which, it cannot be sustained.

The Court in regards to the arguments of violation of constitutional provisions observed that any restriction and embargo so far as establishment and commencement of educational institutions are concerned; the same can only be imposed by State. Thus, such, regulations and resolutions in the nature of executive instructions issued by the PCI amounts to impingement upon the fundamental right of citizen and or a juristic person.

The Court thus held “two resolutions under challenge in the present writ petition Annexure P-3 and P-4 dated 17.07.2019 and 09.09.2019 are also not sustainable in the eye of law and the same deserves to be and are accordingly quashed/set aside with consequences to follow.” [Chouksey College of Pharmacy v. Pharmacy Council of India, 2022 SCC OnLine Chh 762, decided on 22-04-2022]


For Petitioners: Mr. Siddharth R. Gupta and Mr. Pranjal Agrawal

For Respondents: Mr. Rajkumar Mishra and Mr. Tushar Dhar Diwan

Arunima Bose, Editorial Assistant has reported this brief.

National Company Law Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi: The Coram of P.N. Prasad, Judicial Member and Rahul Bhatnagar, Technical Member, declared insolvency proceedings against the builder Supertech Limited.

An application was filed to initiate the Corporate Insolvency Resolution Process against Supertech Limited under Section 7 of the Insolvency and Bankruptcy Code 2016 for the alleged default by the respondent in settling an amount of Rs 431,92,53,302.

Counsel for the Corporate Debtor had admitted the debt and default.

“In order to initiate CIRP under Section 7 the applicant is required to establish that there is a financial debt and that a default has been committed in respect of that financial debt.”

Tribunal on perusal of the documents found that the Corporate Debtor had indebted and defaulted the repayment of loan amount.

Therefore, Coram admitted the present petition and initiated CIRP on the Corporate Debtor with immediate effect.

Mr Hitesh Goel was appointed as Interim Resolution Professional.

Material on record clearly depicted that the respondent had availed the credit facilities and committed default in repayment of the outstanding loan amount.

Tribunal on being satisfied that the present application was held that the applicant financial creditor was entitled to claim its outstanding financial debt from the corporate debtor and that there had been default in payment of the financial debt.

Further, the Coram directed that in terms of Section 13(2) of the Code, public announcement shall be made by the Interim Resolution Professional immediately with regard to the admission of this application under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Moratorium in terms of Section 14 of IBC was declared. Thus following prohibitions are imposed:

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

It was made clear that the provisions of the moratorium shall not apply to transactions which might be notified by the Centre or supply of essential goods or services to the Corporate Debtor are not to be terminated or suspended or interrupted during the moratorium period. As per IBC, the provisions of the moratorium shall not apply to the surety in a contract of guarantee.

Registrar of Companies shall update its website by updating the status of ‘Corporate Debtor’. [Union Bank of India v. Supertech Ltd., 2022 SCC OnLine NCLT 40, decided on 25-3-2022]

Advocates before the Tribunal:

Counsel for the Petitioner: Alok Kumar, Advocate

Counsel for the Respondent: Kanishk Khetan, Advocate

Case BriefsSupreme Court

Supreme Court: In a case related to PCI’s decision to impose 5-year moratorium on the opening of new Pharmacy Colleges for degree and diploma courses, the Division Bench comprising of L. Nageswara Rao and Justice B.R. Gavai, JJ., imposed a stay on the Chattisgarh High Court’s interim order directing the PCI to permit the respondents to submit their application required for the necessary permission and approval and also for grant of necessary affiliation for the academic session 2022-23.

The Pharmacy Council of India (PCI) had approached the Court to assail the impugned interim order of the Chattisgarh High Court in Chouksey College of Pharmacy v. Pharmacy Council of India, 2021 SCC OnLine Chh 3735, wherein the Court had directed the PCI to allow the Respondent herein to submit their application for approval and affiliation for the Academic Session of 2022 – 2023 and to conduct requisite formalities of inspection, etc. except for the granting of permission and approval for admissions.

The genesis of the case relates back to PCI’s notice imposing a 5-year moratorium on the opening of new Pharmacy Colleges for degree and diploma courses vide its decisions dated 17-07-2019 and 09-09-2019 in view of the mushrooming growth of pharmacy colleges, the escalating pharmacist to population ratio which is in excess of the standards of the World Health Organisation, the lack of job opportunities for qualified pharmacists, the vacant seats every year, among other cogent and scientific reasons.

The Respondent institution, desirous of starting a new pharmacy college for the Academic Year of 2021–2022 and aggrieved by the PCI’s decision to impose a moratorium had challenged the same before the High Court on the ground that in on identical set of facts in Shifa College of Pharmacy v. Pharmacy Council of India, W.A. No.746 OF 2020, the Karnataka High Court had held that PCI has the power to regulate, but not prohibit the opening of new colleges and had consequently, quashed the moratorium imposed by the PCI.

Relying on the judgment of the Karnataka High Court, the High Court, by an interim order, had directed the PCI to permit the respondents to submit their application required for the necessary permission and approval and also for grant of necessary affiliation for the academic session 2022-23. The Court further directed to process the application and conclude the requisite formalities of inspection etc., except for the granting of permission and approval for going in for the admissions. So far as the final order of approval and permission as required in terms of the Pharmacy Act was concerned, the same was held to be undertaken after the final outcome of the Writ Petition or the withdrawal of Order by the Pharmacy Council of India, whichever is earlier.

The appellant had challenged the impugned order on the following grounds:

  • The High Court failed to consider that SLP (C) 19671/2021 was pending in the Supreme Court against the judgement of the Karnataka High Court, and although there was no stay on the operation of the said judgement, the outcome of the same is pending and the impugned order would cause grave prejudice to the PCI.
  • The PCI’s decision to impose a moratorium is also the subject matter of challenge in 2500+ Writ Petitions in the Delhi High Court; the petitioners had relied on the judgement of the Karnataka High Court as well as on the impugned interim order of the Chhattisgarh High Court, seeking parity with the Respondent herein.
  • The Delhi High Court had directed the PCI to respond as to why the impugned interim order of the Chhattisgarh High Court should not be followed.

Additionally, the appellants contended that the impugned interim order had been passed without giving any reason insofar as relevant factors like a prima facie case, irreparable injury, balance of convenience, public interest etc. so as to come to the conclusion that granting of an interim relief was warranted in the case.

In the backdrop of above, the Supreme Court had imposed a stay on the impugned interim order with the direction to the High Court to hear the writ petition finally and dispose it of expeditiously, not later than four weeks. A notice, in this regard was also issued to the respondents.

[Pharmacy Council of India V. Chouksey College of Pharmacy, Special Leave to Appeal (C) No(s). 1050 of 2022, decided on 07-02-2022]

Appearance by:

For Appellants: Zoheb Hossain, AOR, Tulika Gupta, Advocate

For Respondent(s): Nidhesh Gupta, Sr. Advocate, Mrigank Prabhakar, AOR, Pai Amit, AOR, Siddharth R. Gupta, Sunita Gupta, Shivam Singh Baghel, Pranjal Agarwal, Aditya Bhat, Omkar Kambi, Suraj Naik and Pankhuri Bhardwaj, Advocates

Kamini Sharma, Editorial Assistant has put story together

Case BriefsHigh Courts

Madras High Court: N. Sathish Kumar, J., while addressing a matter with regard to the dishonour of cheques under Section 138 of Negotiable Instruments Act, 1881, held that the moratorium provision contained in Section 14 of the Insolvency and Bankruptcy Code, would apply only to corporate debtor, but the natural persons mentioned in Section 141 of Negotiable Instruments Act continue to be statutorily liable under Chapter XVII of the Negotiable Instrument Act.

Petitioner’s case was that the petitioner was arrayed as one of the accused in cases pending before the lower courts for the offences under Section 138, 141 and 142 of the Negotiable Instruments Act, 1881.

As per the request of the petitioners ‘company, the complainant company agreed to supply the “Wet Blue Cow Hides” and supplied the same. During the course of business, the accused Company was due and payable to the respondent Company for the supply made. For the said purpose 2nd accused had issued various cheques but the said cheques were dishonoured with an endorsement of “Payment Stopped by the Drawers”. Hence, the respondent had filed the complaints before Judicial Magistrates’ Court.

Petitioners alleged that no legal notice was served by the respondent, hence the complaint under Section 138 NI Act was legally unsustainable and in view of the same while challenging the said complaint present petition was filed.

Analysis, Law and Decision

High Court reiterated a settled position of law that, the criminal liability of natural persons in case of a complaint filed under Sections 138 and 141 of the Negotiable Instruments Act, 1881 would survive, but would not be attracted against the company.

Bench noted that in the present case, the insolvency process was initiated by NCLT, and a moratorium had been declared under the Insolvency and Bankruptcy Code.

Therefore, referred to the Supreme Court decision in P. Mohanraj v. Shah Brothers Ispat (P) Ltd., (2021) 6 SCC 258, wherein it was held that the moratorium provision contained in Section 14 of the Insolvency Bankruptcy Code, would apply only to corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instrument Act,

High Court expressed that, the moratorium was only in respect of the corporate debtor and not in respect of the directors/management and therefore the petitioners 2 and 3 as natural persons were liable for prosecution. However, in view of the declaration of moratorium by NCLT, the prosecution against the company cannot be allowed to continue.

In view of the above, Court quashed the proceedings in respect of 1st petitioner and with regard to petitioners 2 and 3, Court opined that the issue was triable and required an appreciation of evidence and this Court cannot decide the same in exercise of its jurisdiction under Section 482 of CrPC.

High Court directed the petitioners and respondent to co-operate with the trial court for the early completion of trial.[Nag Leathers (P) Ltd. v. Muzain Hides, 2022 SCC OnLine Mad 205, decided on 3-1-2022]

Advocates before the Court:

For Petitioner in all Crl.O.P.s :  Mr T.P. Prabakaran

For Respondent in all Crl.O.P.s : Mr M. Guruprasad

Case BriefsHigh Courts

Chhattisgarh High Court: P. Sam Koshy allowed the interim application and stated that the final approval and permission is subject to the final outcome of the present petition.

The present Writ Petition was filed aggrieved by two separate orders which imposed a moratorium/ban on the opening of the new Colleges and Institutions for imparting B. Pharma and D. Pharma courses in the entire Country for a period of five years. The Petitioners have further sought for an interim direction to the Respondents to facilitate the Petitioners to apply for necessary approval and sanction for opening of a new Pharmacy institution imparting B. Pharma and D. Pharma courses and further to direct the Respondents to accept, process, scrutinize and submit a report on the basis of the scrutiny so far as the entitlement for grant of necessary sanction and approval for the opening of a new Pharmacy institution are concerned.

Counsel for petitioner Mr. Sidharth Gupta and Mr. Pranjal Agarwal submitted that the orders violate the fundamental right under Article 19(1) (g) guaranteed under the Constitution of India and is also in contravention to the provisions of the Pharmacy Act, 1948. He further submitted that the entire Act speaks of the Respondent 1 issuing regulation, regulating the courses of B. Pharma and D. Pharma and the Institutions imparting the said courses. However, at the same time, the Respondent 1 is not empowered to impose a ban on the establishment of the new Colleges and Institutions imparting the courses of Pharmacy. The same could have decided only by the Government and not the Agency monitoring the Pharmacy institutions.

Counsel for respondents Mr. Ramakant Mishra, Mr. Tushar Dhar Diwan and Ms. Samiksha Gupta submitted that that the two orders passed by Respondent 1 have been issued in the year 2019 and that they are already in force for a period of more than two years now and therefore there is no necessity for the staying of the effect and operation of the two Orders at this stage and the matter itself can be finally decided instead of deciding the interim application at this juncture. He further submitted that that the object and intension of the entire Act i.e. the Pharmacy Act, 1948, is to ensure regulations and those too educational regulations. Respondent No.1 has got all the powers to take appropriate decision in the larger interest of the public, particularly so far as the Institutions imparting the Pharmacy courses are concerned. According to Assistant Solicitor General, once when there is a power to issue instructions and regulations so far as the courses of B. Pharma and D. Pharma are concerned, it includes the power of the Agency i.e. Respondent No.1 to impose a ban and prohibition insofar as establishment of new Colleges are concerned. He further submitted that the very purpose of issuance of the two Orders dated 17.7.2019 and 9.9.2019 is to put a check and to bring a curve on the recent mushrooming of the Colleges and Institutions imparting the Pharmacy courses.

The Court observed that the Petitioners have invested huge amount of money for the purpose of putting up requisite infrastructure and the entire planning and other requirements for the purpose of imparting the Pharmacy courses have already been accomplished by the Petitioners. Subsequently, the Petitioners, for grant of necessary furnishings in order to start the Pharmacy courses, applied to the State Government for the requisite NOC which was thereby granted. The Petitioners establishment then approached Respondent 2 University for affiliation whereby the orders under challenge were communicated to the petitioners and the affiliation was rejected.

“From the plain reading of the two impugned Orders, it apparently shows that initially when the first Order was passed on 17.7.2019, the North Eastern region of the Country was excluded from the applicability of the moratorium/ban. However, when the second Order was passed on 9-9-2019 there have been many exceptions that have been carved out and the first Order was diluted to a great extent.”

The Court observed that in order to start an Institution, there are series of activities which have to be planned and executed before finally going in for the admissions of the students and in the instant case the Petitioners have completed the requisite infrastructure facilities in terms of the requirements under the guidelines laid down by the Pharmacy Council of India. It was  further observed that the approvals asked by the petitioner is to prevent wastage of time and in turn precious academic sessions as the time taken for approvals are huge and if the inspections and other formalities are done beforehand so that if any deficiency arises, it can addressed on time too.

The Court thus “directed the Respondents shall permit the Petitioners to submit their application required for the necessary permission and approval and also for grant of necessary affiliation for the academic session 2022-23.” 

“The Respondents shall allow the Petitioners to submit their application either by opening the portal and accepting the application or, in the alternative, receiving the application by any other mode permissible.” 

“The Respondents are further directed to process the application and conclude the requisite formalities of inspection etc., except for the granting of permission and approval for going in for the admissions.”

[Chouksey College of Pharmacy v. State of Chhattisgarh, 2021 SCC OnLine Chh 3735, decided by 09-12-2021]

Arunima Bose, Editorial Assistant has reported this brief.

National Company Law Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Mumbai Bench: The Coram of H.V. Subba Rao, Judicial Member and Chandra Bhan Singh, Technical Member directed that attachment of bank accounts of a Corporate Debtor by tax authorities while Corporate Insolvency Resolution Process was pending is a violation of Section 14 of the Insolvency and Bankruptcy Code.

The interlocutory application was filed by the liquidator against the respondent Deputy Commissioner of State Tax (respondent 1) and Axis Bank Limited (respondent 2) seeking direction from the tribunal to unfreeze/lift the attachment on the bank account of Corporate Debtor maintained by the respondent 2.

It was submitted that the applicant had communicated to respondent 2 about the initiation of the CIRP of the Corporate debtor and further requested respondent 2 to remove the attachment/lien marked on the said bank accounts.

Analysis, Law and Decision

Tribunal noted that the applicant had appraised the officials of respondents 1 and 2.

Bench expressed that,

“…the attachment is violative of Section 14 of IBC and thus needs to be lifted.”

Elaborating further, the Tribunal stated that since the respondent 1 submitted its claims before the liquidator and the same was accepted by the liquidator, it had to be dealt with in the manner as provided under Section 53 of the IBC and hence, respondent 1 cannot continue to enforce its lien over the bank accounts of the Corporate Debtor.

Bench referred to the decision of NCLT in OM Prakash Agarwal v. Tax Recovery Officer, wherein it was held that,

“the monies of the CD lying in the bank account shall be construed to be an asset of the CD even if tan attachment order is passed against the same. It noted that section 178 of the Income-tax Act, 1961 has been amended to allow the Code to have overriding effect and accordingly directed the Bank to defreeze the account”.

Concluding the matter, the Tribunal directed respondent 1 and respondent 2 to lift its lien/attachment over the said bank accounts maintained with respondent 2 bank.

The direction was issued to respondent 2 to unfreeze the bank account of the Corporate Debtor and allow the applicant to manage its operations. [Asis Global Ltd. In re., CP (IB) 4442 (MB)/2018, decided on 28-10-2021]

Advocates before the tribunal:

Mr Nausher Kohli, counsel appearing for the liquidator, was present through a virtual hearing.

National Company Law Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi Bench, New Delhi –The Coram of P.S.N Prasad, Judicial Member and Narender Kumar Bhola,  Technical Member were inclined to allow the process of CIRP, considering the debt acknowledged by the corporate debtor.

In the pertinent matter the corporate debtor approached the operational creditor for supply of image scanner manufactured by the operational creditor. It was alleged that the operational creditor had to send various reminders through emails, text messages and phones for the payment of the goods purchased by the corporate debtor. Pursuant to which even a demand notice was duly served upon.The petitioner thus submitted that since corporate debtor has acknowledged the debt, therefore the petition under Section 9 of IBC, 2016 should be allowed and the CIR process to be initiated against the corporate debtor.

The Tribunal after perusing the written submissions and arguments advanced by the operational creditor was of the opinion that the corporate debtor through emails has acknowledged the debt. Resultantly, the Tribunal was inclined to admit the application to initiate the process of CIRP of the corporate debtor. And further declared moratorium, and appointed an Insolvency Resolution Professional to take charge of the respondent corporate debtor.

It further stated that the supply of essential goods or services of the corporate debtor shall not be terminated, suspended or interrupted during moratorium period.[CSII India Pvt. Ltd. v. Telexcell Information Systems Limited, IB-411/ND/2020, 05-10-2021]

Agatha Shukla, Editorial Assistant has reported this brief.

Counsel for the Parties:

Operational Creditor:

Kshitiz Karjee & Mrinal Agarwal (Advocates)

National Company Law Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal (NCLT): Coram of Judicial Member Ashok Kumar Borah and Technical Member Shyam Babu Gautam has admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 by Bank of India (Financial Creditor) seeking to initiate Corporate Insolvency Resolution Process against VVVF (India) Limited (Corporate Debtor).

Factual Background

Applicant had sanctioned/revised/reviewed/continued various fund based and non-fund based working capital facilities to VVF (India) Limited for a sum of 283.65 Crore (Loan Amount).

In the petition, it was mentioned that the amount in default along with interest was INR 293, 42, 50, 526.79 (Financial Debt), which was due and payable by the Corporate Debtor in favour of the applicant.

Due to various defaults by Corporate Debtor, its account was classified as a Non-Performing Asset by the applicant.

As per the RBI guidelines, if a company failed to repay the loan liability sanctioned to the borrower under the corrective action plan, then the asset classification of the borrower will be considered from the cut-off date considered for the implementation of the corrective action plan (CAP).

In this account, under CAP, long term working capital loan was sanctioned in 2016 and due to payment default the Statutory Central Auditors of the Applicant classified the Corporate Debtor as an NPA from the implementation date of the CAP.

Further, corporate debtor issued a revival letter addressed to the applicant, confirming and admitting the existence of the various facilities and security documents availed by and executed by the Corporate Debtor and its Promoters.

Even the liability to the Financial Creditor was expressly admitted.

Financial Creditor and the Corporate Debtor had executed 14 agreements/contracts reflecting all amendments and waivers, which were forming part of the Financial Creditor’s pleadings.

Since the financial debt amount remained unpaid, the applicant filed the present petition.

Analysis, Law and Decision

The Tribunal opined that the petition was maintainable by law and the defenses raised by the Corporate Debtor were nothing but an attempt to delay the commencement of the Corporate Insolvency Resolution Process of the Corporate Debtor.

Bench while analyzing the facts of the case, referred to the Supreme Court decision in Swiss Ribbons (P) Ltd. v. Union of India, WP (C) 99 of 2018, wherein the Constitutional validity of IBC was upheld, the position was very clear that unlike Section 9, there was no scope of raising a ‘dispute’ as far as Section 7 petition was concerned. As soon as a ‘debt’ and ‘default’ is proved, the adjudicating authority is bound to admit the petition.

Contention with respect to not attaching the documents as raised by the Corporate Debtor was dealt by the Supreme Court in Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy, Civil Appeal No. 1650 of 2020, where the same issue was raised and covered.

In Tribunal’s opinion, no dispute with respect to Corporate Debtor owing money to the Financial Creditor existed.

Further, the Coram added that, the Financial Creditor’s application was complete in all respects as required by law. It clearly showed that the Corporate Debtor was in default of a debt due and payable and the default was in excess of the minimum amount stipulated under Section 4(1) of IBC.

Hence, debt and default stood established.

Therefore, Tribunal ordered as follows:

(a)        Petition filed by the Bank of India, Financial Creditor, under Section 7 of the IBC read with Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process (CIRP) against VVF (India) Limited the Corporate Debtor, is admitted.

(b)       There shall be a moratorium under Section 14 of the IBC, in regard to the following:

(i)  The institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(ii)  Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein;

(iii)  Any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002;

(iv)  The recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor.

(c) Notwithstanding the above, during the period of moratorium:

(i)  The supply of essential goods or services to the corporate debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period;

(ii)  That the provisions of sub-section(1) of section 14 of the IBC  shall not apply to such transactions as may be notified by the Centre in consultation with any sectoral regulator;

(d) Moratorium shall have effect from the date of this order till the completion of the CIRP or until this Adjudicating Authority approves the resolution plan under Section 31 (1) of the IBC or passes an order for liquidation of Corporate Debtor under Section 33 of the IBC, as the case may be.

(e) Public announcement of the CIRP shall be made immediately as specified under section 13 of the IBC read with regulation 6 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

(f) Mr Avil Menezes appointed as Interim Resolution Professional of the Corporate Debtor to carry out the functions as per the IBC.

(g) During the CIRP Period, the management of the Corporate Debtor shall vest in the IRP or, as the case may be, the RP in terms of section 17 of the IBC. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within a period of one week from the date of receipt of this Order, in default of which coercive steps will follow.

(h) Financial Creditor shall deposit a sum of Rs 2,00,000 with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to approval by the Committee of Creditors (CoC).

[Bank of India v. VVVF (India) Ltd., 2021 SCC OnLine NCLT 452, decided on 23-9-2021]


For the Financial Creditor: Nausher Kohli, Nirav Shah and Viraj Gami i/b DSK Legal

For the Corporate Debtor: Mustsafa Doctor, Counsel i/b M/S Dhruve Liladhar & Co.

Supreme Court of The United States
Case BriefsForeign Courts

Supreme Court of The United States: While deciding upon the instant emergency application brought in by the Alabama Association of Realtors challenging the nationwide moratorium on evictions of any tenants during the Covid-19 pandemic; the Court with a ratio of 6:3, decided to end the federal moratorium on residential evictions citing that the Centers for Disease Control and Prevention (hereinafter CDC) clearly exceeded its authority under the Coronavirus Aid, Re­lief, and Economic Security Act, 2020 by taking the matters into its own hands and subsequent extension of the March 2020 moratorium through July 2021.

Background: In March 2020, Congress passed the Coronavirus Aid, Re­lief, and Economic Security Act to ease the burdens caused by the rapidly increasing COVID–19 pandemic. Among other reliefs, the Act im­posed a 120-day eviction moratorium for properties that participated in federal assistance programs or were subject to federally backed loans. When the eviction moratorium expired in July, Congress did not renew it. However, the CDC upon concluding that further action was needed “did what the Congress did not” and renewed the moratorium, covering all residential properties nationwide and imposing criminal penalties on violators.

The CDC’s moratorium was originally slated to expire on December 31, 2020, but Congress extended it for one month as part of the second Covid–19 relief Act. As the new deadline approached, the CDC again took matters into its own hands and extended its moratorium through March, then again through June, and ultimately through July 2021.

Contentions: The CDC contended that S. 361(a) of the Public Health Service Act allows it to ‘make and enforce such regulations (as in his judgment) which are necessary to prevent the introduction, transmission, or spread of communicable diseases from foreign countries into the States or possessions, or from one State or possession into any other State or possession’. Thus the provision gives the CDC broad authority to take whatever measures it deems necessary to control the spread of COVID–19, in­cluding issuing the moratorium.

The Realtor associations and rental property managers in Al­abama and Georgia meanwhile argued that the moratorium has put the landlords across the country at risk of irreparable harm by depriving them of rent payments with no guarantee of eventual recov­ery. Despite the CDC’s determination that landlords should bear a significant financial cost of the pandemic, many landlords have modest means, and preventing them from evicting tenants who breach their leases intrudes on one of the most fundamental elements of property owner­ship—the right to exclude. It was also contended that the CDC has exceeded it statutory authority in renewing and extending the eviction moratorium.

Observations: The Majority comprising of John Roberts, C.J., Amy Coney Barrett, Brett Kavanaugh (concurring), Samuel Alito, Neil Gorsuch and Clarence Thomas, JJ., noted that it is indisputable that the public has a strong interest in combating the spread of the COVID–19 Delta variant, but “our system does not permit agencies to act unlawfully even in pursuit of desirable ends”. The Judges observed that the moratorium’s constant extension meant that the equities have begun to favour the landlords and their contentions became stronger because vaccine and rental-assistance distribution had improved since the stay was entered, while the harm to landlords had continued to increase. Perusing the aforementioned arguments of the CDC, the Court noted that the downstream connection between eviction and the interstate spread of disease is noticeably different from the direct tar­geting of disease that characterizes the measures identified in the statute. “Reading both sentences together, rather than the first in isolation, it is a stretch to maintain that S. 361(a) gives the CDC the authority to impose this eviction moratorium”.

Coming down heavily upon the CDC and the Government, the Court also observed that the issues at stake are not merely financial. The mor­atorium intrudes into an area that is the particular domain of state law: the landlord-tenant relationship- “This claim of expansive authority under S. 361(a) is un­precedented. Since that provision’s enactment in 1944, no regulation premised on it has even begun to approach the size or scope of the eviction moratorium. And it is further amplified by the CDC’s decision to impose criminal penal­ties of up to a $250,000 fine and one year in jail on those who violate the moratorium. Section 361(a) is a wafer-thin reed on which to rest such sweeping power”.

The Majority concluded by holding that even if the Government believed that its action was necessary to avert a national catastrophe, the same could not over­come a lack of Congressional authorization. It is up to Con­gress, not the CDC, to decide whether the public interest merits further action here. “If a federally imposed eviction moratorium is to continue, Congress must specifically authorize it”.

Dissenting Opinion: Stephen Breyer, Sonia Sotomayor and Elena Kagan, JJ., disagreed with the observations of the majority and observed that the Court should not set aside the CDC’s evic­tion moratorium in this summary proceeding as the criteria for granting the emergency application have not been met in the instant matter. It was further observed that, “Applicants raise contested legal questions about an im­portant federal statute on which the lower courts are split and on which this Court has never actually spoken. These questions call for considered decision making, informed by full briefing and argument”.

[Alabama Association for Realtors v. Dept. of Health and Human Services, 2021 SCC OnLine US SC 14, decided on 26-08-2021]

Sucheta Sarkar, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Madras High Court: V. Parthiban, J., expressed that plea of public interest in a private loan transaction is only a mask to conceal for petitioners’ interest with a view to obstruct the enforcement of contractual obligation.

Instant petition was filed against the letter of respondent calling upon the petitioner company to forthwith pay Rs 1995,05,17,808 within 7 days failing which, further action would be taken including revocation of Restructuring Agreement entered into between the parties.

Analysis, Law and Decision

What is challenged in the instant petition?

The dispute is between private entities. A communication dated 30-04-2021 issued by the fourth respondent, a private company (an Asset Reconstruction Company), against the petitioner invoking certain clauses in terms of restructuring agreement of loan between the contesting parties, was challenged.

With respect to the issue of maintainability of writ against a private person or private legal entity, the legal position was no more res integra, as various decisions of the Supreme Court and High Court held that the issuance of the writ could not be denied merely because it sought to be issued against a private person or private entity.  Hence, the Court observed that,

“…this Court does not wish to open up any fresh vista on the rudimentary understanding of the progressive expansion of public law jurisdiction in matters where the Court finds interplay of private interest and public duty.”

 The judicial endeavour is appreciation of the relationship of the parties, their mutual rights and obligations within the private and commercial framework and in that relationship collaterally or concomitantly any public duty is imposed, or public interest is involved to bring the dispute arising from such relationship within the mischief of writ jurisdiction of the Court or not?

Petitioner’s primary contention was that, the 4th respondent which stepped into the shoes of consortium of initial lenders namely 9 nationalised banks failed to implement and comply with the Reserve bank of India circulars before issuing the impugned communication. In view of such a contention, it was stated that when there was a duty cast upon the banks and the financial institutions which admittedly included the 4th respondent, failure to follow the circulars amounted to abdicating its public duty enjoined upon them and in that view of the matter, a command ought to be issued by the Court by way of a Writ for their compliance.

Judicial Scrutiny

In a contractual relationship purely governed by commercial consideration, enforcing the terms of contract/agreement by one party as against the other could be subjected to judicial scrutiny under writ jurisdiction of the Court, is a knotty question and the answers are not be found on any definite legal principles or defined contours of factual circumstances.

Elaborating the above, it was stated that as a consequence of the march of law the judicial review is directed against the action, decision making process and not concerned with identity of the body as such.

High Court observed that the circular dated 27-03-2020 which appeared to be the fulcrum of the petitioner’s submission for maintaining the writ petition began with the preamble that certain regulatory measures had been initiated and announced by the Reserve Bank of India for schedule of payment due to Covid-19 crisis.

The said circular envisaged granting of moratorium that all payments due between March 2020 and May, 2020 would be shifted by 3 months extending the period of the payment to August 2020. The circular, while delineating the policy, permitted the financial institutions to consider grant of the benefit of moratorium. The circular also envisages exemption from the benefit in regard to the loan accounts being declared as NPA.

Further, in the said circumstances, admittedly individual financial institutions were given latitude and discretion to take a call in regard to the extension of the moratorium benefit to its borrowers.

Entitlement of the petitioner as to the benefit fell squarely within the framework as between the 4th respondent and petitioner.

When the relationship is founded on the Commercial and the contractual terms and understanding, the extension of the benefit of the moratorium by one party in favour of the other party, is dependent on various facts to be taken into consideration within the private and contractual precincts of such relationship.

Bench expressed that,

If this Court were to investigate into the disputed areas of understanding between the private parties, it would certainly amount to pitch forking a public law jurisdiction into a private dispute arising under a valid contractual relationship between the parties.

High Court stated that merely because RBI Circulars were issued during the pandemic crisis, it cannot change or transform the core character of the relationship of the parties and assume the coloration of public interest.

Bench expressed that it does not find any public character attached to the relationship of the parties. Transaction between them was plainly commercial without a tinge or shade of public function involved.

Further, the Court did not see any public duty imposed on 4th respondent that is referable in the context of complying with certain provisions contained in the enactments like Industrial Disputes Act, Minimum Wages Act, the Factories Act or the Statutes relating to Pollution etc., or even certain duties which have been imposed by common law, custom, or even contract stretching the requirement in terms of the observation of the Supreme Court of India in Ramesh Ahluwalia v. State of Punjab, (2012) 12 SCC 331.

Public duty becomes enforceable only when there is legal compulsion for its adherence.

Court opined the following:

  • There was no compulsion imposed on 4th respondent to extend the benefit of moratorium, regardless of the nature of the default and nature of agreement between the parties.
  • In absence of any compulsion/obligation or legal mandate to follow a particular course of action, the right exercised by the 4th respondent within the 4 corners of the commercial agreements and the disputes arising thereof would certainly not come within the broad context of public law recourse.

Activities of Port: Public Interest?

It was submitted by 1st respondent Port that the activities with respect to 1st respondent Port substantially touch upon the public interest. Any disruption of its activities by the adverse action of 4th respondent would only lead to a short supply of essential goods and ultimately, would only undermine the public interest.

Employment was also provided by the 1st respondent to thousands of employees and the continuance of payments of salaries and other related obligations would also get affected as a consequence of respondent 4’s action.

Bench stated that no doubt Port activities are essential services to keep the public interest afloat, but the 1st respondent was again a private company. Its activities may touch upon the public interest, nevertheless, the petitioner cannot be allowed to craftily project the port activities for the purpose of hitching on the public interest bandwagon.

In High Court’s view, the petitioner attempted to stealthily subserve their private interest behind the facade of public interest citing port activities.

On a wafer-thin legal basis, contending RBI circulars being not followed, the writ petition was sought to be maintained. Court stated that such slender premise is not good enough to maintain the writ petition in the circumstances of the case. 

In view of the Supreme Court decision in Central Bank of India v. Ravindra, (2002) 1 SCC 367, it was observed that where transactions concerned are not squarely governed by the RBI Circulars, in that case, such circulars are to be treated as standards to judge whether the action taken by the private Banks is opposed to any public policy. Hence, the petitioner cannot compel the Court to issue a command, namely Mandamus and more so, Writ of Certiorari.

Facts in the case of Bombay High Court’s decision in TransconIconica (P) Ltd. v. ICICI Bank, 2020 SCC Online Bom 626, are identical to the present matter. In the said matter directions were passed.

In Karnataka High Court’s decision of Velankani Information Systems Ltd. v. Ministry of Home Affairs, 2020 SCC Online Kar 835, the challenge was to the action initiated by a private bank and the challenge principally was on the ground that Bank did not follow RBI Circular.

The Court found that the Bench in the above decision delved pervasively into the factual disputes and held that petitioner was entitled to the moratorium protection and in that context, RBI was directed to enforce the recovery package as contained in the RBI Circular and consequently the action initiated by the private lending institution came to be set aside.

Further, the Court remarked that it is unable to follow the above judgment.

In the present matter, the very entitlement of the benefit of a moratorium was being questioned seriously and the Court was also of prima facie view that there appears to be a substantial force in the submissions of 4th respondent. Therefore, the applicability of the RBI circular itself being an unsure case of the petitioner, question of maintaining the petition would necessarily fail on that plank.

“… already stretched boundaries of writ jurisdiction for advancing the bonafide constitutional goals cannot be further stretched to bring all private disputes within the fold of judicial review.”

 Concluding the decision, Bench held that in exercise of writ jurisdiction, the Court would certainly not get involved in the commercial disputes entirely arising from the private relationship driven by commercial consideration and issue any command as that would amount to injudicious intrusion and invasive transgression into the defined areas of conflict governed by mutual rights, liabilities and obligations.

In view of the above discussion, petition was dismissed. [Marg Limited v. Karaikal Port (P) Ltd., 2021 SCC OnLine Mad 2585, decided on 2-07-2021]

Case BriefsHigh Courts

Gujarat High Court: G.R. Udhwani, J., dismissed a petition wherein a mandate was sought to issue an order/ circular / instructions directing all non-banking financial companies such as respondent 3 to refrain from taking steps for recall of loans availed by various persons or for liquidating securities pledged or available with them, during the period of a moratorium until 31-08-2020 as may be extended by respondent 1.

The petitioner was a borrower and respondent 3 was a financier. The Court observed that from the bare perusal of the prayer clauses evidently, the petition was more in the nature of requiring this Court to undertake the activity of banking regulations upon itself and pass omnibus orders directing the respondents more particularly the respondent 1 to come up with the policy decision as desired by the petitioner.

The Court held that such a petition cannot be maintained, assuming that it is maintainable, even on merits, no case is made out; inasmuch as, the entire case proceeds on the misconception as to the applicability of the statement on the development and regulatory policy.

The Court was unable to find any provision in the policy above-stated bearing on the maintaining of the margin, consequently dismissed the petition.[Seetha Kumari v. Reserve Bank of India, R/Special Civil Application No. 7942 of 2020, decided on 07-07-2020]

Suchita Shukla, Editorial Assistant has reported this brief.

Op EdsOP. ED.

The preamble of the Insolvency and Bankruptcy Code, 2016 (IBC) states that, the purpose of IBC is to provide a mechanism for the insolvency resolution of debtors in a time-bound manner in order to enable maximisation of the value of their assets, thereby promoting availability of credit and balance the interests of all the stakeholders. In order to achieve this, Section 14 of IBC has been incorporated, which provides for moratorium, which is a period where no judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts can be instituted or carried on against the corporate debtor. But since the enactment of IBC, moratorium under Section 14(1) (a) of IBC has come under scrutiny and the courts have laid down multiple interpretations and exceptions to the same.

It is in light of the objectives of IBC and the interpretations to Section 14(1) (a) of IBC, that the notice issued by the Supreme Court of India in Malayan Banking Berhad v. Ushdev International Ltd[1]. is of vital importance. In the present case, the counsel of Malayan Banking Berhad submitted that, the point of contention before the Supreme Court of India was that the moratorium imposed under Section 14(1) (a) of IBC would only be applicable in civil suits filed “against the Corporate Debtor” and as the suit before the Bombay High Court was filed “by the Corporate Debtor i.e. Ushdev International Ltd.”, therefore, the Moratorium under Section 14(1) (a) of IBC would not be applicable.

Brief Facts Leading up to the SLP

Malayan Banking Berhad had filed a review petition before the Bombay High Court titled, Malayan Banking BHD v. Ushdev International Ltd.[2] seeking review of the order dated 07th July, 2019 passed by the Bombay High Court in Notice of Motion filed by Malayan Banking Berhadin, a suit initiated by Ushdev International Ltd. During the pendency of the Notice of Motion, a petition against Ushdev International Ltd. under IBC was admitted by the NCLT, Mumbai, thereby initiating CIRP against Ushdev International Ltd. and imposing Moratorium. In lieu of the same, the Bombay High Court vide order dated 07th July, 2019, adjourned the proceedings under the Notice of Motion, sine die.

Malayan Banking Berhad, challenged the order dated 07th July, 2019 vide the aforesaid review petition, wherein the Bombay High Court vide order dated 16th September, 2019 held that, the Notice of Motion would fall within the term “proceeding” as contemplated under Section 14(1) (a) of IBC, as it is a proceeding seeking rejection of the Suit filed by the corporate debtor, which is under CIRP and Moratorium. It was also observed that, the submission of Malayan Banking Berhad that, moratorium does not stay all the proceedings is erroneous. Hence, the Bombay High Court upheld the order dated 07th July, 2019. The order dated 16th September, 2019 passed in the review petition was challenged before the Supreme Court of India and the Supreme Court of India was pleased to issue notice.

Ambiguity in the Legal Position

The contentions of Malayan Banking Berhad as noted in the notice issued by the Supreme Court of India, sheds light on the fact that there exists an ambiguity in the legal position relating to the applicability of Moratorium upon the adjudication of proceedings filed by the Corporate Debtor, as the judicial trend reflects a conflicting and divergent view.

When majority of the petition(s) filed under Section(s) 7, 9 or 10 of IBC before the NCLT, are admitted, moratorium under Section 14(1) (a) of IBC is always imposed, against the proceedings filed or to be instituted by or against the corporate debtor. It is to be noted that, Section 14(1)(a) of IBC specifically states that proceedings “against the Corporate Debtor” are to be stayed, despite the same proceedings filed “by the Corporate Debtor” are also stayed. It was with regards to this ambiguous legal position that Malayan Banking Berhad had filed the SLP before the Supreme Court of India.

This question had come up for interpretation before the Delhi High Court in Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd.[3] , wherein the Single Judge laid down the factors needed to determine the applicability of moratorium to proceedings filed by the Corporate Debtor. The factors were:

  1. “The nature of the proceedings has to be considered; and
  2. it has to be observed whether such proceedings are in the favor of the Corporate Debtor or against the Corporate Debtor.[4]

If the answers to the factors are in favor of the Corporate Debtor then staying such proceedings during moratorium would cause harm to the Corporate Debtor and would also be against the objectives of IBC. The Single Judge was of the considered view that the application of moratorium should not be used to impose a blanket stay on all proceedings, rather in proceedings initiated by the Corporate Debtor, it should be considered if the continuation of the proceeding would benefit the Corporate Debtor. It was also observed that, a proceeding would not be prohibited under Section 14(1) (a) of IBC, unless it has the effect of endangering, diminishing, dissipating or adversely impacting the assets of Corporate Debtor.

The Single Judge was of the opinion that, the legislative intent was to restrict the meaning and applicability of moratorium under Section 14(1)(a) of IBC to proceedings filed against the Corporate Debtor and not to proceedings filed by the Corporate Debtor, which is evident from the narrow construction of the phrase “against the Corporate Debtor” in Section 14(1)(a) of IBC as compared to the wider phrase “by or against the Corporate Debtor” as under Section 33(5) of IBC.

Recently, the Delhi High Court in SSMP Industries Ltd. v. Perkan Food Processors Pvt. Ltd.[5] was called upon to decide on whether the adjudication of a suit filed by the Corporate Debtor and counter-claim filed in the same could be carried on during moratorium imposed under Section 14(1) (a) of IBC. The Single Judge relied upon the reasoning of the  Delhi High Court in Power Grid Corporation of India (Supra) and did not stay the adjudication of the suit and counter-claim, holding that the assets of the Corporate Debtor were not under any threat till the adjudication of the counter-claim and Section 14 of IBC can only be triggered at the stage when the counter-claim is adjudicated upon and the amount to be paid/recovered has been determined or when the execution proceedings are filed against the Corporate Debtor and these were subject to the prevalent situation. The Single Judge was also of the considered opinion that, with regards to the applicability of moratorium on proceedings filed by the corporate debtor, it has to be observed, whether the purpose and intent behind the imposition of moratorium is being satisfied or defeated and a blinkered approach cannot be followed, whereby the Court stays the proceedings and refers the defendant to the NCLT/RP for filing its claims.

A similar reasoning is also found in Jharkhand Bijli Vitran Nigam Ltd. v. IVRCL Ltd. (Corporate Debtor)[6] , wherein the NCLAT was called upon to adjudicate on the issue, whether a claim filed by the Corporate Debtor and a counter-claim filed in the same arbitral proceedings could be heard, during the Moratorium period. The NCLAT allowed the claim of the Corporate Debtor along with the counter claim to be heard by the arbitral, as there is no bar regarding the same under IBC and held that, if it is found that the Corporate Debtor is liable to pay a certain amount, then in such case, no recovery can be made during the period of moratorium.

From the aforesaid cases, it can be observed that, there is an ambiguity with regards to the proceedings filed by the corporate debtor and their adjudication during moratorium, where one school of thought is of the opinion that the moratorium covers all proceedings filed by or against the corporate debtor, but on the other hand the other school of thought is of the view that due to the restrictive wordings of Section 14(1) (a) of IBC and due to the objectives of moratorium, it is only applicable upon proceedings filed against the corporate debtor and when it comes to proceedings filed by the corporate debtor, moratorium should be applicable only after considering the benefit to the corporate debtor.

The Balancing Act

The interpretation put forward by the Delhi High Court and the NCLAT in the aforesaid cases, does raise a pertinent issue with regards to the interpretation and applicability of the phrase “against the corporate debtor” as under Section 14(1)(a) of IBC. Upon prima facie reading it would appear that the legislative intent was to restrict the applicability and meaning of moratorium as under Section14(1) (a) of IBC and this interpretation would also benefit the Corporate Debtor, its corpus and the creditors. Despite the clear advantages to this interpretation, there are a few drawbacks too, which are:

  1. If the proceedings filed by the corporate debtor are allowed to continue, it might delay the entire process and the statutorily mandated time lines;
  2. if the proceedings are allowed to continue, it could cause financial stress in the form of additional litigation expenses; and
  3. if the Courts are called upon to observe whether a proceeding is in favour or against the Corporate Debtor, it is as good as pronouncing an assessment based on a preliminary understating of the proceeding, which could be detrimental to the parties involved and might lead to situations of overlapping of judicial powers and functions.

If the interpretation is to be carried out and applied, certain stringent checks/factors would be needed to be put in place, such as the factors delineated by the Delhi High Court and in addition to those some other factors such as, the status/stage of the proceeding should also be considered and a stringent timeline should be imposed for completion of adjudication of the pending proceedings, etc. Thereby balancing the positives and the drawbacks.


The interpretation would definitely help the corporate debtor and would also be in line with the objectives of IBC, but without stringent judicial guidelines to determine which proceedings should be stayed and which shouldn’t, it could be detrimental to everyone involved. A balanced approach with stringent guidelines to be followed to determine whether the proceedings filed by the corporate debtor can be adjudicated upon during the moratorium period is needed, as the same would have a positive impact on the corporate debtor, its creditors and related parties. It remains to be seen how the Supreme Court of India deals with the issue and settles the position. But, for now, the interpretation of staying all the proceedings filed by or against the corporate debtor, seems to be the way.

Advocate at Bombay High Court and National Company Law Tribunal, Mumbai.

[1] 2020 SCC OnLine SC 1068

[2] 2016 SCC OnLine Bom 6962 

[3] 2017 SCC Online Del 12729

[4] ibid

[5] 2019 SCC Online Del 9339

[6] 2018 SCC Online NCLAT 296.

Hot Off The PressNews

The Government of India sanctioned the Scheme for the amalgamation of the Lakshmi Vilas Bank Ltd. with DBS Bank India Ltd. The amalgamation came into force on the Appointed date i.e. November 27, 2020.

Customers, including depositors of the Lakshmi Vilas Bank Ltd. will be able to operate their accounts as customers of DBS Bank India Ltd. with effect from November 27, 2020. Consequently, the moratorium on the Lakshmi Vilas Bank Ltd. will cease to be operative from that date. DBS Bank India Ltd. is making necessary arrangements to ensure that service, as usual, is provided to the customers of the Lakshmi Vilas Bank Ltd.

[Press Release dt. 25-11-2020]

Reserve Bank of India

Cabinet DecisionsLegislation Updates

Scheme of Amalgamation

The Union Cabinet has given its approval to the Scheme of Amalgamation of Lakshmi Vilas Bank Limited (LVB) with DBS Bank India Limited (DBIL).

On 17.11.2020, to protect depositors’ interest and in the interest of financial and banking stability, on RBI’s application under section 45 of the Banking Regulation Act, 1949, LVB had been under a moratorium for a period of 30 days. In parallel, RBI, in consultation with Government, superseded the Board of Directors of LVB and appointed an Administrator to protect the depositors’ interest.

After inviting suggestions and objections from the public and stakeholders, RBI prepared and provided a scheme for the bank’s amalgamation for the Government’s sanction, well in. advance of the end of the period of moratorium so that restrictions on withdrawal faced by the depositors are minimised. With the approval of the scheme, LVB will be amalgamated with DBIL from the appointed date, and with this there will no further restrictions on the depositors regarding the withdrawal of their deposits.

DBIL is a banking company licenced by RBI and operating in India through wholly-owned subsidiary model, DBIL has a strong balance sheet, with strong capital support and it has the advantage of a strong parentage of DBS, a leading financial services group in Asia, with presence in 18 markets and headquartered and listed in Singapore. The combined balance-sheet of DBIL would remain healthy even after amalgamation and its branches would increase to 600.

The speedy amalgamation and resolution of the stress in LVB is in line with the Government’s commitment to a clean banking system while protecting the interests of depositors and the public as well as the financial system.


[Press Release dt. 25-11-2020]

Business NewsNews


The financial position of The Lakshmi Vilas Bank Ltd. (the bank) has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth.

In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses. Further, the bank is also experiencing the continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues and practices in recent years which have led to the deterioration in its performance. The bank was placed under the Prompt Corrective Action (PCA) framework in September 2019 considering the breach of PCA thresholds as on March 31, 2019.


The Reserve Bank had been continually engaging with the bank’s management to find ways to augment the capital funds to comply with the capital adequacy norms. The bank management had indicated to the Reserve Bank that it was in talks with certain investors. However, it failed to submit any concrete proposal to Reserve Bank and the bank’s efforts to enhance its capital through the amalgamation of a Non-Banking Financial Company (NBFC) with itself appears to have reached a dead end. As such, the bank-led efforts through market mechanisms have not fructified. As bank-led and market-led revival efforts are a preferred option over a regulatory resolution, the Reserve Bank had made all possible efforts to facilitate such a process and gave enough opportunities to the bank’s management to draw up a credible revival plan, or an amalgamation scheme, which did not materialise. In the meantime, the bank was facing regular outflow of liquidity.


After taking into consideration these developments, the Reserve Bank has come to the conclusion that in the absence of a credible revival plan, with a view to protecting depositors’ interest and in the interest of financial and banking stability, there is no alternative but to apply to the Central Government for imposing a moratorium under Section 45 of the Banking Regulation Act, 1949. Accordingly, after considering the Reserve Bank’s request, the Central Government has imposed moratorium for thirty days effective.


The Reserve Bank assures the depositors of the bank that their interest will be fully protected and there is no need to panic. In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank’s amalgamation with another banking company. With the approval of the Central Government, the Reserve Bank will endeavour to put the Scheme in place well before the expiry of the moratorium and thereby ensure that the depositors are not put to undue hardship or inconvenience for a period of time longer than what is absolutely necessary.

The Reserve Bank has also issued certain directions to the bank under section 35 A of the Act ibid.

Reserve Bank of India

[Dt. 17-11-2020]

Case BriefsHigh Courts

Delhi High Court: A Division Bench of Hima Kohli and Subramonium Prasad, JJ., considered the following question:

Whether a bank/financial institution can institute or continue with proceedings against a guarantor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), when proceedings under the Insolvency and Bankruptcy Code 2016 (IB Code) have been initiated against the principal borrower and the same are pending adjudication?

Respondent 4 was the principal borrower in the present case who had obtained loans from the State Bank of India. Guarantor was the wife of the promoter of the principal borrower. Further, it has been stated that the bank filed an insolvency petition against the principal borrower under the provisions of the IB Code before the NCLT, Delhi.

At the time of pendency of the insolvency proceedings against the principal borrower, bank issued a notice under Section 13(2) of the SARFAESI Act to the petitioner and another notice under Section 13(4) of the SARFAESI Act was also issued. Both the notices were challenged by the petitioner.

The above-stated notices were challenged before Debts Recovery Tribunal but were later withdrawn in light of negotiation talks between the Bank and the Principal Borrower.

Petitioner alleged that without issuing a Notice under Section 1(4) of SARFAESI Act, the Bank issued  Sale Notice under Rule 8 (6) of Security Interest (Enforcement) Rules for sale of her residential house.

In the instant matter, the prime question for consideration was confined to the action of the Bank of initiating proceedings against the petitioner under the SARFAESI Act when insolvency proceedings have been initiated against the Principal Borrower under the IB Code and the same are pending before the NCLT.

Analysis & Decision

Bench referred to the relevant provisions, Sections 14 and 31 of the IB Code and Section 128 of the Contract Act.

Section 14 of the IB code related to Moratorium, Section 31 of the IB Code refers to the approval of the resolution plan and Section 128 of the Contract Act provides the Surety’s liability.

Section 128 of the Contract Act provides that the liability of a Guarantor is coextensive with that of the Principal Debtor.

Bench cited the decision of Industrial Investment Bank of India Ltd. v. Biswanath Jhunjhunwala, (2009) 9 SCC 478.

Court held that since the liability of a guarantor is co-extensive with that of the principal debtor and not in the alternative, it cannot be said that proceedings in the NCLT against the principal debtor can be a bar to institution or continuation of proceedings against the guarantor under the SARFAESI Act.

Bench stated that the question raised with regard to whether the bank can proceed against a guarantor even after initiation of proceedings under the IB Code also stands settled and is squarely covered by the Supreme Court’s decision in SBI v. V. Ramakrishan, (2018) 17 SCC 394.

The above-cited decision holds that Sections 14 and 31 of the IB Code do not bar initiation and continuation of the SARFAESI proceedings against the Guarantor.

View of the Supreme Court amply demonstrated that neither Section 14 nor Section 31 of the IB Code place any fetters on banks/Financial Institutions from initiation and continuation of the proceedings against the guarantor for recovering their dues.

Therefore, Court held that,

“…petitioner cannot escape her liability qua the respondent/Bank in such a manner. The liability of the principal borrower and the Guarantor remain co-extensive and the respondent/Bank is well entitled to initiate proceedings against the petitioner under the SARFESI Act during the continuation of the Insolvency Resolution Process against the Principal Borrower.”

In view of the above, no merit was found in the petition and hence was dismissed. [Kiran Gupta v. State Bank of India, 2020 SCC OnLine Del 1390, decided on 02-11-2020]

OP. ED.SCC Journal Section Archives

The National Company Law Appellate Tribunal (hereinafter “Nclat”) recently in Shah Bros. Ispat1, approved parallel continuation of proceedings under the Negotiable Instruments Act, 1881 (hereinafter “the NI Act”) against a company subjected to moratorium while undergoing resolution process under the Insolvency and Bankruptcy Code, 2016 (hereinafter “the IB Code”). The decision of Nclat raises multiple issues ranging from an apparent conflict between the NI Act and the IB Code to practical impossibilities in allowing both the proceedings to continue simultaneously. The object of the article is to discuss the legal problems that may arise in light of the decision in Shah Bros. Ispat1, and why the decision needs to be revisited in light of the settled law.


The appellant creditors before Nclat had initiated two separate proceedings under Section 138 of the NI Act, one prior to the admission of insolvency proceedings under the IB Code and one post the admission of insolvency proceedings under the IB Code. The respondent debtor contended that once a moratorium is imposed under Section 14(1)2 of the IB Code, proceedings under the NI Act would have to be halted. Nclat categorically rejected the submission and held:

6. … as Section 138 is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine, [and] cannot be held to be proceeding or any judgment or decree of money claim. Imposition of fine cannot held to be a money claim or recovery against the Corporate Debtor nor order of imprisonment, if passed by the court of competent jurisdiction on the Directors, they cannot come within the purview of Section 14. Infact no criminal proceeding is covered under Section 14 of I&B Code.3

The major precise for allowing parallel continuation of proceedings was that the moratorium does not cover criminal proceedings, but it is submitted that while this position might be true, proceedings under the NI Act cannot be classified as criminal proceedings in strict sense. The decision of Nclat raises multiple issues, namely:

(a) whether proceedings under the NI Act are purely criminal in nature,

(b) whether the accused company’s right to compose (and put an end to) a cheque bounce case is circumvented during the imposition of moratorium, and

(c) whether continuation of parallel proceedings under the NI Act and the IB Code conflict with the object as well as the procedure of the resolution process and if whether it affects the rights of other creditors.

For the purposes of the argument, the article does not distinguish between the NI proceedings initiated prior to the initiation of proceedings under the IB Code and the NI proceedings initiated post the initiation of proceedings under the IB Code since the reasoning of Nclat permeates both the scenarios.

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Advocate, Punjab and Haryana High Court, Chandigarh, BA LLB (Hons.) and Executive Member, Bar Association of Punjab and Haryana High Court. Graduated in 2016 from National Law University, Delhi. Ph. No: +918447586173. Email Address,

** This article was first published in Supreme Court Cases (2020) 1 SCC J-23. It has been reproduced with the kind permission of Eastern Book Company

[1] Shah Bros. Ispat (P) Ltd. v. P. Mohanraj, 2018 SCC OnLine NCLAT 415.

[2] Insolvency and Bankruptcy Code 2016, Section 14(1) states:

14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the adjudicating authority shall by order declare moratorium for prohibiting all of the following, namely:

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(emphasis supplied)

[3] Shah Bros. Ispat (P) Ltd., 2018 SCC OnLine NCLAT 415, para 6.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Bench comprising of Justice S.J. Mukhopadhaya (Chairperson) and Justice B.L. Bhat (Judicial member) rejected an appeal challenging an NCLT judgement where it allowed a liquidator to sell the assets of a company which had been attached by the Directorate of Enforcement (ED) during the period of ‘Moratorium’.

The Resolution Professional had filed an application before the NCLT for releasing the attachment of certain assets of Varrsana Ispat Limited (Corporate Debtor) by the ED. The NCLT held that ordering the release of the attached assets would not be maintainable since the attachment order was issued before the order of declaration of ‘Moratorium’ in the present case. The aforesaid NCLT order had been challenged in this appeal.

The Tribunal rejected the appellant’s contentions that Section 14 of the Insolvency and Bankruptcy Code, 2016 would have an overriding effect over the Prevention of Money Laundering Act, 2002 and that creditors and investigative agencies could not disrupt the ‘Corporate Insolvency Resolution Process’ during the period of ‘Moratorium’. The bench observed that since the provisions of the Prevention of Money Laundering Act, 2002 pertained to ‘proceeds of crime,’ Section 14 of the I&B Code would not be applicable to such a proceeding.

The Order stated that the offence of money-laundering has nothing to do with the ‘Corporate Debtor’ but will be applicable to individuals such as ex-Directors and shareholders of the ‘Corporate Debtor,’ who cannot be given protection from the Prevention of Money Laundering Act, 2002 by taking advantage of Section 14 of the I&B Code. Rather, it held that both the Acts would be invoked simultaneously. Since the attachments were made by the ED long before the initiation of the Corporate Insolvency Resolution Process, this would disallow the ‘Resolution Professional’ from taking advantage of Section 14 of the I&B Code. [Varrsana Ispat Limited v. Deputy Director, Directorate of Enforcement, Company Appeal (AT) (Insolvency) No. 493 of 2018, decided on 27-07-2020]

Case BriefsCOVID 19High Courts

Karnataka High Court: Suraj Govindaraj, J., dealt with a petition which was filed in order to enforce the regulatory package announced by the RBI by issuing directions to the RBI to  monitor the implementation of the Circular, including verification  of whether there are Board-approved policies formulated by each of the lenders, direct all the banks to submit the Board-approved policies for approval to the RBI, to approve such board-approved policy, verify if such a board-approved policy contains objective criteria, set up a proper and effective grievance redressal forum for any aggrieved borrower to approach on account of the  improper or non-implementation of the Policy and/or Circular etc.

The Petitioner had availed term loan facilities from respondents namely HDFC Bank Limited, Federal Bank and Aditya Birla Finance Limited. The Petitioner has been in the business of running an Information Technology Park, a 5 star Hotel, both of which have been constructed on the land belonging to the Petitioner. In order to service the aforesaid loan, there was an agreement arrived at between lenders that the revenue from the lease rentals of the Technology Park would be credited into Escrow Account and revenue from the  Petitioner’s hotel business would be credited into another Escrow Account. Respondents were entitled to appropriate the Equated Monthly Installment payable on the loans due to them from the Escrow Account where the lease rentals were deposited; the excess rental was to be released from the Escrow Account to the current account of the Petitioner for utilization by the Petitioner to meet its expenses. Similarly, the revenue arising out of the hotel business was to be deposited in the Escrow Account relating to the hotel business, from and out of which, the Petitioner was entitled to draw monies to its current account on a daily basis for use in connection with its hotel business and from the balance, make payment of the equated monthly installment on the loan borrowed on account of the hotel business to respondent on the due date that was 13th of every month. The RBI had set out the various development and regulatory policies to address the stress in the financial condition caused by COVID-19 so as to ease the financial stress which included relaxing  the repayment pressures on the borrowers and by improving access to the working capital by such borrowers. On the basis of which the petitioners had filed the present petition. The Respondents had filed objections contending that the Petitioner had suppressed the material facts in that the Petitioner was receiving rentals from the Technology Park, merely because income/revenue was not being received from the hotel, the Petitioner would not be eligible for any moratorium and the circular issued by the RBI was not mandatory in nature, only directory.

The Court while answering if the writ of Mandamus could be issued against a private bank to implement the circular issued by RBI, held that the writ would be maintainable for the enforcement of public duty. Answering next two questions of whether the circular was mandatory, directory or discretionary and whether grant of moratorium was at the discretion of the bank the Court said that the circular was no doubt discretionary but as far as the power to grant or not a moratorium by a bank, it is mandatory for the Bank to ensure the continuity of viable businesses, in that, the non-grant of a moratorium should not result in adversely affecting the survival and continuity of a viable business and because of the nature of the circular being discretionary any directions cannot be issued to the respondents 1 & 2 to for implementation of the circular.

The Court while disposing of the petition directed the respondents to grant the petitioner with the moratorium period and restrained them from either jointly or severally recovering the loan repayment installments/EMI due in respect of loan accounts of the petitioner during the period of moratorium. It further directed to reverse the recovery of loan repayment installments/EMI already affected and transfer the same to the Current Account of the Petitioner. [Velankani Information Systems Ltd. v. Union of India, 2020 SCC OnLine Kar 835 , decided on 08-07-2020]

Banking Sector

In order to soften the global impact of COVID-19 on the banking sector, Reserve Bank of India on 27-3-2020 announced a moratorium for a period of 3 months starting from 1-3-2020 to 31-5-2020 on repayment of all term loans by borrowers including individuals and companies. Clause 5 of RBI statement did not make the moratorium mandatory rather discretionary meaning thereby if a borrower wants, he can pay the EMI with interest and opt out of the moratorium option. On the other hand, if a borrower does avail such a moratorium then that would not lead to downgrading of the borrower’s credit rating or affect the risk classification of the loan. Further, availing the moratorium will not entail any change in the existing terms and conditions of the loan. The interest on EMI, however, shall continue to accrue on the outstanding amount and the collective interest for the 3 months shall become due and payable only after the expiry of deferment period.

This article addresses a set of peculiar issues that have arisen in view of the arrangement of repayment of loans in terms of RBI guidelines and the view taken by Courts in a few cases. The most glaring issue relates to the date of coinciding of an account becoming NPA with the declaration of 3 months moratorium period starting from 01.03.2020.

The Income Recognition and Asset Classification Guidelines (IRAC Guidelines) of RBI provide for a three-stage process before an account is declared as NPA. On default of the first 30 days, the borrower’s account is classified as Special Mention Account–1 (SMA-1) and if the instalment is overdue by 60 days, the account is classified as Special Mention Account–2 (SMA-2) and if the instalment is overdue by a period of 90 days, the account is classified as Non-performing Asset (NPA).

The case of Anant Raj Ltd. v. Yes Bank[1] filed before the Delhi High Court appears to be the first case on the issue as to whether an account having being declared SMA-2 on 01.03.2020 would be eligible to avail the moratorium period or not? The Delhi High Court interpreted the Guidelines in a manner that it provides a status quo even in the classification of any account which is already in default. The Court held that:

“The restriction on change in classification as mentioned in the regulatory package shows that RBI has stipulated that the account which has been classified as SMA-2 cannot further be classified as a non-performing asset in case the instalment is not paid during the moratorium period i.e. between 01.03.2020 and 31.05.2020 and status quo qua the classification as SMA-2 shall have to be maintained.

The Court further held that:

‘…for a period of three months there will be a moratorium from payment of that instalment. However, stipulated interest and penal charges shall continue to accrue on the outstanding payment even during the moratorium period. If post the moratorium period, borrower fails to pay the said instalment, classification would then automatically change as per the IRAC Guidelines.”

A similar proposition arose before the Bombay High Court in Transcon Sky City Pvt. Ltd. v. ICICI Bank [2], where the question for consideration was whether the moratorium period is excluded in the computation of the 90-day period for amounts that fell due prior to 1-3-2020 and which remain unpaid or in default. The Court prima facie held that the protection sought to be availed by Transcon Sky City by virtue of RBI circulars would clearly apply to all amounts due after 01.03.2020.

Another interesting yet distinct controversy has arisen before the Delhi High Court in Indiabulls Commercial Credit Ltd. v. SIDBI[3] where ICCL challenged the demand raised by Small Industrial Development Bank of India (SIDBI) for the month of April 2020. The Court considered whether the 3-months’ RBI moratorium is applicable to Non-Banking Financial Institutions (NBFC) or not? Unfortunately, RBI has not given any clarity on this issue and to twist the knife, the Indian Bank’s Association (IBA) circular leaves out NBFCs as beneficiaries of 3 month moratorium period. An indisputable argument of the NBFCs is that money is borrowed from the financial institutions in order to disburse loans to low income earners and smaller sectors. Naturally, these sectors will default in repayment by availing moratorium and if the financial institutions do not ease the repayment terms by NBFCs then it would be calamitous.

The orders passed by Delhi High Court and Bombay High Court have met with some criticism from the banking industry, apprehending its possible rippling effect on other accounts, and a possibility of other defaulters taking a shield of such orders to protect their accounts from any further downgrading.

The borrowers claim that the Courts have correctly interpreted RBI circulars to mean that status quo shall be maintained for all term loan accounts maintained with the banks as on 01.03.2020.

It would be interesting to see if the judgments are challenged by the banks or financial institutions, and what is the outcome. For the present however, the Courts have acted with a pragmatic approach to find a solution to the economic and financial difficulties of the borrowers.

*Arjun Garg is Advocate on Record and Partner at GSL Chambers

**Rati Tandon is an Advocate and Associate at GSL Chambers

[1] 2020 SCC OnLine Del 543 

[2] 2020 SCC OnLine Bom 626 

[3] 2020 SCC OnLine Del 573