A note on the Insolvency and Bankruptcy Code, 2016

The National Company Law Tribunal (“NCLT”), Mumbai Bench, on 18 January 2017 passed an order allowing the first application filed under the Insolvency and Bankruptcy Code, 2016. The said application (“Creditor Petition”) was filed by ICICI Bank under section 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”). Section 7 provides for initiation of corporate insolvency resolution process by a creditor against a corporate debtor. During the pendency of the said Creditor Petition, the corporate debtor therein filed an interim application, stating that on the date of filing of the Creditor Petition, the liabilities and debts of the debtor were suspended pursuant to an order of the Industry, Labour and Energy Department of Maharashtra. Such order was given by the department under the Maharashtra Relief Undertaking Act, (“MRU Act”) to provide financial assistance to the debtor and as a measure to prevent unemployment. It was argued by the debtor that by virtue of such order a proceeding under the Code cannot be initiated against the debtor. The NCLT while deciding the issue observed that the Code has come into existence subsequent to the MRU Act, and shall prevail over any other law in force. The Bench further observed that a proceeding under the Code shall not cause unemployment and even in the event of liquidation, the rights of the employees will be sufficiently protected. Therefore it was held by the Bench that the order under the MRU Act will not be a bar to pass an order under section 7 of the Code.[i] Thus an order of Moratorium in the said Creditor Petition was passed and directions to initiate the corporate insolvency resolution process under the Code, were given. The direction under the moratorium included prohibition and/or stay of proceedings against the debtor under any other law in force, including the SARFAESI Act.