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Insolvency and Bankruptcy Code's Section 14(1)(a) Not Applicable to Proceedings Beneficial to Corporate Debtor

The present petition was filed to sought set-aside of an arbitral award by the Power Grid Corporation of India Ltd. The arbitral award was purely in the nature of money decree and was passed in the favor of Jyoti Structures Ltd.
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Delhi High Court in its recent judgement said that the section 14(1)(a) of the insolvency and bankruptcy code is not applicable on the proceedings of corporate debtor which are beneficial to them.

The present petition was filed to sought set-aside of an arbitral award by the Power Grid Corporation of India Ltd. The arbitral award was purely in the nature of money decree and was passed in the favor of Jyoti Structures Ltd.

The advocates appearing on behalf of the respondent Jyoti Structures Ltd stated that they will be unable to execute the award passed in their favor if the present proceedings are stayed by the court. It was further submitted that by them that in light of their impending financial condition they will be unable to recover the dues. Advocates Ashim Sood, Payal Chandra, Dhruv Sood and Rhythm Buaria represented the respondents and the petitioner was represented by the Senior Advocate KK Rai.

The present petition raised the question that whether the proceedings are to be stayed as per section 14(1)(a) under section 34 of the act.

Justice Yogesh Rai observed that the “Stay of proceedings against an award in favour of the corporate debtor would rather be stalking the debtor’s effort to recover its money and hence would not fall in the embargo of Section 14 (1) (a) of the Code.”

It was further noted by the court that the code’s object is to provide relief to a corporate debtor during a period in which its assets are being protected from diminishment or during a period which can strengthen the financial position of corporate debtor.

The court further said that if the execution of the award is extended then it would prevent the corporate debtor from recovering its money and this is contrary to the object of code.

The court further noted that the “The report of the Bankruptcy Law Reforms Committee on the rationale and design of the Code also demonstrates the moratorium is to apply to recovery actions and filing of new claims against the corporate debtor and the purpose behind moratorium is there should be no additional stress on the assets of the corporate debtor”

The court also finally explained the following things:
Section 14(1)(a) does not include all proceedings
Moratorium under section 14(1)(a) of the code is intended to prohibit debt recovery actions against the assets of corporate debtor.
Proceedings initiated under section 34 of the act which are not in future is going to endanger or adversely effect the corporate debtor assets are not prohibited under section 14(1)(a)
The object of the code shall be preserved and shall not be defeated and the proceeding to not to cause any harm to the right to seek determination of the either party under section 34 of the act.

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Reviewed by:
Mehak Sharma
Published on 17-Dec-2017
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