NCLAT (09.08.2017) in Schweitzer Systemtek India Pvt. Ltd. Vs. Phoenix ARC Pvt. Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 129 of 2017] taking recourse to strict interpretation of the word “its” [section 14(1)(c)], ruled that the language of the section is so simple that there is no scope to even supply casus omissus. Thus, the property not owned by the corporate debtor does not fall within the purview of the Moratorium. In other words, the moratorium shall prohibit the action against the properties of the corporate debtor that reflects in its balance sheet and not on the properties beyond the ownership of the corporate debtor.
As a result, "its" denotes the property owned by the Corporate Debtor. The property not owned by the Corporate Debtor do not fall within the ambits of the Moratorium. Even Section 10 is confined to the Book of the Accounts of the Corporate Debtor, due to the reason that Section 10(3) has specified that the Corporate Applicant shall furnish "its" Books of Accounts. This Bench has no legislative authority to expand the meaning of the term "its" even under the umbrella of 'Ejusdem generis'.
Before I part with it is necessary to clarify my humble view that The SARFAESI Act may come within the ambits of Moratorium if an action is to foreclose or to recover or to create any interest in respect of the property belonged to or owned by a Corporate Debtor, otherwise not.
Excerpts of the order;
09.08.2017: The Appellant-Corporate Applicant has challenged the order dated 3rd July, 2017 passed by Ld. Adjudicating Authority (National Company Law Tribunal) Mumbai Bench, Mumbai in T.C.P. No. 1059/I&BP/ NCLT/MB /MAH /2017, whereby and whereunder the application preferred by appellant under Section 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I & B Code") has been admitted, an order of Moratorium has been passed and Insolvency Resolution Professional has been ordered to be appointed.
# 2. The grievance of the appellant is that the movable and immovable property of Guarantor (promoter) has been attached pursuant to Corporate Resolution Process initiated under section 10 against the Appellant-Corporate Applicant. However, such statement has been disputed by the Ld. Counsel appearing on behalf of 1st Respondent/ 'Financial Creditor'.
# 3. From the impugned order, we find that the Ld. Adjudicating Authority noticed the provision relating to Moratorium (Sec. 14) and clarified as to which property is to be attached, as apparent from the observations and finding as quoted below:
8.1. On careful reading I have noticed that the term "its" is significant. The plain language of the Section is that on the commencement of the Insolvency process the 'Moratorium' shall be declared for prohibiting any action to recover or enforce any security interest created by the Corporate Debtor in respect of "its" property. Relevant section which needs in-depth examination is Section 14 (1) (c) of The Code. There are recognised canons of interpretation. Language of the Statute should be read as it existed. This is a trite law that no word can be added or substituted or deleted from the enacted Code duly legislated. Every word is to be read and interpreted as it exists in the statute with the natural meaning attached to the word. Rather in this Section the language is so simple that there is no scope even to supply casus omissus, I hasten to add that the doctrine of Noscitur a Sociis' is somewhat applicable that the associated words take their meaning from one another so that common sense meaning coupled together in their cognate sense be interpreted. As a result, "its" denotes the property owned by the Corporate Debtor. The property not owned by the Corporate Debtor do not fall within the ambits of the Moratorium. Even Section 10 is confined to the Book of the Accounts of the Corporate Debtor, due to the reason that Section 10(3) has specified that the Corporate Applicant shall furnish "its" Books of Accounts. This Bench has no legislative authority to expand the meaning of the term "its" even under the umbrella of 'Ejusdem generis'.
8.2 The outcome of this discussion is that the Moratorium shall prohibit the action against the properties reflected in the Balance Sheet of the Corporate Debtor. The Moratorium has no application on the properties beyond the ownership of the Corporate Debtor. As a result, the Order of the Hon'ble Court directing the Court Commissioner to take over the possession shall not fall within the clutches of Moratorium. Even otherwise, the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (the SARFAESI Act) may be having different criteria for enforcement of recovery of outstanding debt, which is not the subject matter of this Bench. Before I part with it is necessary to clarify my humble view that The SARFAESI Act may come within the ambits of Moratorium if an action is to foreclose or to recover or to create any interest in respect of the property belonged to or owned by a Corporate Debtor, otherwise not.
9. To conclude the Application under Section 10 of The Code is hereby "Admitted" subject to the exception as carved out supra. The consequential directions shall be that the provisions of Section 14 of The Code i.e. "Moratorium" shall come into operation. Next, the proposed name of Interim Resolution Professional i.e. (Page 4 name) is hereby approved. The IRP shall take appropriate action such as Public Announcement etc. so that the Insolvency Resolution Process shall be initiated expeditiously. He is directed to submit a Progress Reportwithin one month's time from the commencement of Insolvency Resolution Process."
# 4. Similar question fell for consideration before this Appellate Tribunal in "Alpha & Omega Diagnostics (India) Ltd. V. Asset Reconstruction Company of India Ltd. & Ors." in Company Appeal (AT) (Insol.) No. 116 of 2017 by judgment dated 31st July, 2017, this Appellate Tribunal while upheld such findings, made following observations: -
"4. Ld. Counsel appearing on behalf of the Appellant submitted that the appellant has grievance only relating to qualifying part of the impugned order as quoted above. According to the appellant, the Moratorium should take into its recourse on the subject matters and assets relating to its matters pending before the Debt Recovery Tribunal (DRT) and under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).
5. However, we are not inclined to accept such submissions as Appellant-Corporate Applicant has sought for "its" own insolvency resolution process that will include only the assets of the Corporate Debtor and not any assets, movable or immovable of a third party, like any director or other. In so far as 'guarantor' is concerned, we are not expressing any opinion, as they come within the meaning of 'Corporate Debtor individually', as distinct from principal debtor who has taken a loan.
# 6. In the aforesaid background, if Ld. Adjudicating Authority, on careful reading of the provisions has come to the definite conclusion that on commencement of the insolvency process the "Moratorium" shall be declared for prohibiting any action to recover or enforce any security interest created by the 'Corporate Debtor' in respect of "its" property, no ground is made out to interfere with the said order."
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