Manoj Toshniwal vs. IFCI Limited - That interim moratorium [section 96(1)] commences against all the debts (including his personal debt) and the creditors of the debtor are barred from initiating any legal proceedings in respect of any debt.

NCLT Kolkata-1 (07.06.2022) in Manoj Toshniwal  vs. IFCI Limited  [I.A (IB) No. 310/KB/2022 in C.P (IB) No. 319/KB/2021] held that;

• That interim moratorium [section 96(1)] commences against all the debts (including his personal debt) and the creditors of the debtor are barred from initiating any legal proceedings in respect of any debt. 

• Hence, we are of the view that the interim moratorium [section 96(1)] restrains any ongoing or fresh legal action or proceeding in respect of any debt pertaining to the Personal Guarantor.

Excerpts of the order;  

# 1. The Court convened via hybrid mode.

# 2. On 12 November 2018, EMC Limited (‘Corporate Debtor’) was admitted into  Corporate Insolvency Resolution Process (‘CIRP’) and Mr. Rakesh Kumar Agarwal was appointed as the Interim Resolution Professional. Further, vide order dated 06 February 2019 Mr. Kannan Tiruvengadam was appointed as the Resolution Professional. The Resolution Plan was approved vide order dated 21 October 2019.

# 3. Thereafter, in the year 2021, an application under section 95 of the Code, being (C.P (IB) No. 210/KB/2021), was filed by the State Bank of India (‘SBI’). Further, IFCI Limited (‘IFCI’), being one of the Financial Creditor of the Corporate Debtor, also filed an application being (C.P (IB) No. 319/KB/2021), under section 95 (1) of the Code against the Personal Guarantor of the Corporate Debtor.

# 4. This is an application under section 60(5) of the Insolvency and Bankruptcy Code(‘Code’) by Mr. Manoj Toshniwal (‘Personal Guarantor’)of the Corporate Debtor inter alia, praying for the following reliefs; (a) An order for setting aside the order dated 17 February, 2022, passed by this Adjudicating Authority.

Submission by the Ld. Counsel appearing on behalf of the Personal Guarantor

# 5. The application filed by the SBI was listed before Court – II of the Kolkata Bench (‘Coordinate Bench’).The Coordinate Bench vide its order dated 14 January, 2022 appointed Mr. Kannan Tiruvengadam, as the Resolution Professional (‘RP’) and directed to file a report under section 99 of the Code. However, the order dated 14 January, 2022 was modified by an order dated 21 February, 2022 by the Coordinate Bench and the name of the RP was changed from Mr. Kannan Tiruvengadam to Mr. Tarun Kumar Ray.

# 6. Subsequently, the application filed by IFCI came up for hearing on 17 February, 2022 before this Adjudicating Authority, wherein a different Resolution Professional was appointed and directed to submit report.

# 7. As per under section 96(1)(b) of the Code during the interim moratorium period the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. Hence, the proceeding in C.P (IB) No. 319/KB/2021 before this Adjudicating Authority should also be stayed.

Analysis and Findings

# 8. We have heard the Ld. Counsel appearing on behalf of the parties and perused the documents on record.

# 9. On a conjoint and careful reading of section 96(1) of the Code it appears that an interim moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application and; during the interim moratorium period, all legal actions or proceedings pending in respect of any debt shall remain stayed and creditors shall not initiate any legal action or proceeding in respect of any debt. 

# 10. The presence of the term ‘and’ in the section should be read as a conjunctive one, which joins clause 1(a) of the section with clause 1(b) and infers that interim moratorium commences against all the debts (including his personal debt) and the creditors of the debtor are barred from initiating any legal proceedings in respect of any debt. Hence, we are of the view that the interim moratorium restrains any ongoing or fresh legal action or proceeding in respect of any debt pertaining to the Personal Guarantor.

# 11. Further, the application by IFCI was filed on 29 September, 2021, whereas, the application by SBI was filed on 09 July, 2021, which indicates that the interim moratorium against the personal guarantor commenced from 09 July, 2021.

# 12. In view of the above facts and circumstances, we, hereby, order as follows;

• (a) I.A (IB) No. 310/KB/2022 is allowed.

• (b) Resultantly, C.P (IB) No. 319/KB/2021 is stayed.

• (c) Consequently, the order dated 17 February, 2022 is hereby recalled.

• (d) The Resolution Professional appointed vide order dated 17 February, 2022 shall be discharged of his duties.

# 13. A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.

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# Section 96. (1) When an application is filed under section 94 or section 95—

(a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and

(b) during the interim-moratorium period—

(i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and

(ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.

(2) Where the application has been made in relation to a firm, the interim-moratorium under  subsection (1) shall operate against all the partners of the firm as on the date of the application.

(3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

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