Section 95 of the IBC, 2016 states that a creditor either himself or jointly along with other creditors or through a Resolution Professional may file an application to the Adjudicating Authority for the initiation of the Insolvency Proceedings under the Code. Further, where any dent is owed to a partnership firm, any creditor may prefer to file an application under sub –section (1) of the said section 95 against any one or more of the partners of the firm or the partnership firm. Sub-section 3 of section 95 states that, where any application has been preferred under the said section, any other application against another partner in the said firm, shall be presented or transferred to the said Adjudicating Authority under which the first mentioned application is pending Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks just.

 

The legislative intent has been decided in light of the following matter:

In the instant petition, one of the constituent of the bank M/s. JVL Agro Industries Limited enjoyed several credit facilities of the bank. The petitioner along with his family acquired major shareholding in the said company and the latter, who was the promoter/ director of the said Corporate Debtor M/s. JVL Agro Industries Limited, was accustomed to act as per the directives of the petitioner.

The said CD was undergoing CIRP under section 7 of the IBC, wherein the said CD failed to evolve the Resolution Plan and subsequently the company was directed to be wound up. A show cause notice was issued by the Bank upon the petitioner declaring him as Wilful defaulter as per the Guidelines on 7th November, 2019. During the said proceedings, an application under section 95 was filed by the Bank and thereafter the Final review order was passed declaring him as wilful defaulter.

The petitioner seeks the intervention of the Court with respect to the order passed by the Reviewing Authority   declaring him as Wilful Defaulter proceedings of the State Bank of India. The petitioner seeks that he is entitled to stay of the aforesaid order in view of the moratorium under section 96 of the IBC, 2016.

Interplay and distinction between Section 14 and section 96 of the IBC, 2016.

The intent of the moratorium imposed under section 14 of the IBC, 2016 is to protect the assets of the Corporate Debtor and nothing else, in order to enable an RP to strive for smooth passage for an fruitful Resolution Plan. The object of section 14 was to preserve and protect the value of the Corporate Debtor from the acts and omissions of its promoters and shareholders.

The distinction between the corporate insolvency under Part II of the IBC from individual insolvency under Part III must be understood. They are separate and distinct and aimed to achieve different ends. The principles applied the corporate insolvency cannot be applied to personal insolvency. The legislative intent of the moratorium as imposed under section 14 is of vast with respect to that of under section 96 which is restrictively applied only to the debt. The object and the purpose of the moratorium under section 14 is to invite resolution applicants for revival of the Corporate Debtor under Part II whereas under Part III the purpose of the moratorium is to facilitate repayment/ resolution of the debt to all the categories of debtors.

The object and the purpose of the Guidelines dated 7th November, 2019 is to disseminate credit information of the wilfull defaulter so that other lenders are cautioned and do not lend any further money. It is also aimed at preventing further fraud and loss of public money. The proceedings against the wilfull defaulter is not recovery of debt. The repayment of the debt will not ipso facto extinguish the default.  To stay wilful defaulter proceedings, criminal proceeding or quasi criminal proceeding under any Moratorium under Section 96 would defeat the object and purpose of the part III of the IBC. Such stay would also amount to permitting a wrong doer to commit a further wrongs for the purpose of remedying an existing wrong.

The court further opined referring the matter of Suresh Kumar Patni & Ors. vs. SBI, that the rights and the responsibilities of the bank in case of confrontation of such situation, is to take criminal action against the defaulter borrower, who has been identified as a “wilful Defaulter”. The very purpose of the Guildeline by citing the aforementioned matter is to bring to the notice of the public at large the financial misconduct of the petitioner. This confers more of a discharge  of responsibility and obligation then merely a right.

Conclusion

In light of the afore mentioned judicial interpretation of the decisions passed by the Court, it can be concluded that the Court is absolutely correct in dismissal of the petition seeking stay of the proceedings of wilful defaulter as per the Master Circular . The responsibility of the bank is to institute Criminal proceedings would amount to appropriate conduct in the discharge of its responsibilities and obligations which is the essence of the Guideline.