Shri. S. Palaniappan, Liquidator Vs. Shri. Nathella Prappanna Kumar & Ors - It is also true that the transactions carried an exorbitant rate of interest but the same being the business transactions cannot be said to be the extortionate credit transactions. In commercial business, parties are free to make the transactions fixing the rate of interest which do not require the interference of the Tribunal.

 NCLT Chennai-2 (26.07.2023) In Shri. S. Palaniappan, Liquidator Vs. Shri. Nathella Prappanna Kumar & Ors.  [MA/89(CHE)2021 in CP/129/IB/2018] held that;

• It is  also true that the transactions carried an exorbitant rate of interest  but the same being the business transactions cannot be said to be  the extortionate credit transactions. In commercial business,  parties are free to make the transactions fixing the rate of interest  which do not require the interference of the Tribunal.

Excerpts of the Order;  

This application has been filed by Shri. S. Palaniappan,  Liquidator of M/s. Nathella Sampath Jewellery Private  Limited under Sections 43, 44, 45, 47, 48, 49 & 50 of the  Insolvency and Bankruptcy Code, 2016 ("IBC") read with Rule 11  of the NCLT Rules, 2016 seeking the following reliefs: 

• a) Declare that the sale transactions in respect of 3 flats to the tune of Rs. 45  lakhs are preferential, defrauding creditors, Extortionate under section 43,  44, 45, 48, 49 & 50 of the Code; 

• b) Direct the Respondents No. 4 & 5 to pay Rs. 45 lacs plus interest at 12%  p.a. from 12.06.2017 till the date of payment or present market value of  the property whichever is higher into the liquidation estate of the CD; 

• or 

• Direct the respondents to make contribution to the assets of the Corporate  Debtor either jointly or severally  

• c) direct the Respondents No.4 to submit revised claim to the Liquidator  calculating interest rate at 12% per annum instead of existing interest rate  as per the loan agreement which are extortionate; 

# 2. The facts leading to filing of this application are that the  Corporate Debtor was admitted to Corporate Insolvency Resolution  Process ("CIRP") under Section 10 of IBC, 2016 ("Code") vide an  order dated 23.04.2018. Shri. N. Ravindranath was appointed as  Interim  Resolution Professional ("IRP"). On the approval   Committee of Creditors ("CoC"), Sri. Ram Ratan Kanoongo was appointed as Resolution Professional ("RP") vide an order dated  21.06.2018. In the 5th CoC meeting held on 19.09.2018, CoC  arrived at a conclusion that pursuant to the Enforcement  Directorate attachment order dated 31.07.2018 on the properties  of the Corporate Debtor and the action taken by the Economic  Offence Wing, Chennai Police on the Promoters, it has become  difficult to resolve the Corporate Debtor. Therefore, CoC  recommended for the liquidation of Corporate Debtor which  application was allowed by this Tribunal vide an order dated  03.01.2020. RP Sri. Ram Ratan kanoongo was appointed as the  Liquidator. 

# 3. The Liquidator made the public announcement in Form-B  calling upon the stakeholders to submit their claims. Last date  was fixed as 09.02.2020. In the meantime, pursuant to the  reference made by the Tribunal to the Insolvency and Bankruptcy  Board of India ("IBBI") proposing the name of another Insolvency  Professional, this Tribunal vide an order dated 23.01.2020,  appointed Sri. M. Raguuram as the Liquidator to carry out the  liquidation process of the Corporate Debtor. Since Mr. M. Raguram  expressed his inability to act as Liquidator, based  on the  recommendations of the IBBI, this Tribunal vide an order dated  25.02.2020 appointed the Applicant as the Liquidator. 

# 4.  The Liquidator verified the claims and filed the list of  stakeholders before the Tribunal. A public announcement was  made in the newspapers "Dinamani" (Tamil) and "Financial  Express" (English) in Chennai editions regarding the list of the  stakeholders of the Corporate Debtor. In response to the public  announcement, 4th Respondent viz., Sri Hemant Mehta raised the  claim of Rs.2,75,25,236/- (Rupees Two Crores Seventy Five Lakhs  Twenty Five Thousand Two Hundred and Thirty Six only). 

# 5. As per the ledger for the period from 01.04.2016 to 31.03.2017 and from 01.04.2019 to 31.03.2020 of the Corporate  outstanding principal loan  Debtor,  component  was  Rs. 1,35,00,000/- (Loan Amount of Rs.1,50,00,000 less amount  repaid Rs.15,00,000/-).  It was found that the Respondent No.4  charged exorbitant interest @ 36% per annum besides charging  interest of Rs.10,00,000/- on the loan amount of Rs.1,50,00,000/-  for the first two months of the loan period from 21.12.2016 to  21.02.2017. 

# 6.  The Liquidator admitted the claim of the 4th Respondent to  the tune of Rs. 1,35,00,000/- being the principal outstanding in the  books of Corporate Debtor and communicated his decision vide  Statement of Verification dated 21.09.2020. This was subject to  furnishing a reply and property documents of the Corporate Debtor  sought by the Liquidator vide email dated 07.09.2020. 

# 7.  It is stated that the insolvency commencement date of the  Corporate Debtor was 23.04.2018, the financial transactions of  Respondent No.4 with the Corporate Debtor was on 21.12.2016  i.e. within two years of the insolvency commencement date. Since  it was extortionate credit transactions under Section 50 of the  Code carrying an interest rate at 3.33% per month, the Liquidator  has prayed this Tribunal to modify the interest rate at 12% per  annum for the above financial transaction with the Corporate  Debtor. 

# 8.  It is stated that while carrying out the process as prescribed  under Section 35 of the Code, it was noticed that besides other  assets, Corporate Debtor has three immovable properties as  detailed in para 11 at page-H as per the audited financial  statement as on 31.03.2016 and 31.03.2017 and the provisional  financial statement as on 15.01.2018. The above assets were  accounted in the books of the Corporate Debtor against which the  depreciation was claimed. It was found that the above properties  were purchased out of the funds of the Corporate Debtor and the  gross book value of the properties are Rs.34,86,123/- (Rupees  Thirty Four Lakhs Eighty Six Thousand One Hundred and Twenty  Three only). It was noticed that the Corporate Debtor had entered  into a Sale and Construction Agreement dated 29.01.2010 with  M/s. Antony Projects Private Limited for purchase of the above  three flats at Medavakkam. The seller of Medavakkam flats vide  separate letters dated 15.12.2011 had addressed to the Corporate  Debtor to take possession of the above three flats which were  ready for occupation. It was also noticed that these three flats  were in possession and control of the Corporate Debtor since  December 2011 as reflected in the books of the Corporate Debtor  and in the Provisional Financial Statements as on 15.01.2018 and the Corporate Debtor  depreciation on these assets

# 9. It is stated that on enquiry, Respondent No.1 through a mail  dated 11.08.2020 informed the Applicant/Liquidator that the above  three flats owned by the Corporate Debtor were registered to  Shri. Hemant and his family directly from Antony Projects Private  Limited vide Sale Deed and the sale consideration for the said flats  was paid by Sri. Hemant and his family to the seller i.e. M/s.  Antony Projects Private Limited @ Rs.12,00,000/- (Rupees Twelve  Lakhs only) each flat. However, no consideration has been shown  in the books of the Corporate Debtor towards return of money and  these flats continued to be shown as assets of the Corporate  Debtor on which the depreciation was claimed.. 

# 10. It is stated that the above flats are registered in the name of  Shri. Hemant Mehta and Smt. Sandhya Mehta, W/o. Shri. Hemant  Mehta by M/s. Antony Projects Private Limited through Sale Deed   dated 12.06.2017 for a consideration of Rs.2,63,940/- (Rupees  Two Lakhs Sixty Three Thousand Nine Hundred and Forty only)  each who transferred the flats to different parties vide Sale Deeds  dated 19.12.2018 and 10.01.2019 respectively. 

# 11. It is alleged that the said transaction is preferential and  fraudulent with an intent to defraud the creditors.  In a query  raised by the Applicant through email dated 07.09.2020, it was  replied by Respondent No.4 vide his letter dated 03.10.2020 that  the above properties are not in anyway connected with the existing  claims or loans given by them through the loan documentation,  though in the letter dated 12.06.2017 addressed to the Corporate  Debtor, it was stated that the above properties are secured to  them for the business loan availed by the Corporate Debtor. It is  stated that since no such business loan transaction existed in the  books of the Corporate Debtor, clarifications were sought from the  4th Respondent vide mail dated 22.02.2021 which was replied by  the 4th Respondent vide reply mail dated 03.03.2021. 

# 12. It is stated that in the email dated 11.08.2020, the sale  consideration was reported as Rs.12,00,000/- (Rupees Twelve  Lakhs only) each but in the letter dated 12.06.2017 the value of  the each flat was reported as Rs.15,00,000/- (Rupees Fifteen  Lakhs only). As per the sale deed dated 12.06.2017, the sale  consideration mentioned was Rs.2,63,940/- (Rupees Two Lakhs  Sixty Three Thousand Nine Hundred and Forty only) per flat. It is  stated that no money was passed on to the Corporate Debtor and  the aforesaid transactions are the undervalued transactions. 

# 13. It is stated that primary objectives of the IBC are to preserve  and maximize the insolvency estate.  

# 14. It is prayed that the above sale be declared as solely  covering under Section 43, 44, 45, 48, 49 and 50 of the Code and  Respondent No. 4 & 5 be directed to pay Rs.45,00,000/- plus  interest at the rate of 12% per annum from 12.06.2017 till the  date of payment over the market value of the three flats to the  liquidation account of the Liquidator for liquidation under 53 of the  Code. 

# 15. On getting notice of the application, the Respondent No. 4  and 5 filed their reply alleging that the said transactions were  entered between a third party i.e. Antony Projects Private Limited  and not with the Corporate Debtor. The Respondents have not  purchased any asset from or of the Corporate Debtor.  

# 16. It is stated that the above transactions are neither the  preferential nor the fraudulent transactions. It is stated that the  loan was given under the valid agreement and the prayer as to  reduction of rate of interest is not maintainable. 

# 17. Rejoinder is filed by the Liquidator along with the copy of the  audited financials/provisional financials, copy of ledger for the  above flats wherein the Liquidator denied all the averments made  in the reply and reiterated what has been stated in the application.  It is stated that Respondent No. 4 & 5 are admittedly one of the  creditors of the Corporate Debtor under liquidation. In fact, they  have filed their claims before the Liquidator in their capacity as  creditors to the Company in liquidation and the Liquidator has  partly admitted their claims.  

# 18. We have heard Learned Counsel for the parties and perused  the written synopsis filed by the Liquidator. 

# 19. A perusal of ledger of Hemant & Co. for the period from    01.04.2016 to 31.03.2017 at page-3 of the application reflects  credit and debit entries of Rs.1,50,00,000/- and 15,00,000/-  respectively as on 21.12.2016 and 28.03.2017. The said entries  are also reflected in the account maintained by M/s. Nathella  Sampath Jewellery Private Limited ("Corporate Debtor"), in the  ledger from 01.04.2019 to 31.03.2020 in respect of Hemant & Co.  Ledger (all) showing a balance of Rs.1,35,00,000/-. The document  at page-5 of the application contains the loan agreement dated  21.12.2016 signed between M/s. Hemant & Co. and M/s. Nathella  Sampath Jewellery Private Limited towards advancement of loan of  Rs.1,50,00,000/- vide RTGS 000314 dated 21.12.2016. Personal   Guarantee was also given by Mr. Nathella Prappana Kumar as seen  from the document at page-9. The document at page-11 contains  the statement of accounts of M/s. Hemant & Co. maintained with  the HDFC Bank Limited reflecting the receipt from M/s. Nathella  Sampath Jewellery Private Limited on 28.03.2017. M/s. Nathella  Sampath Jewellery Private Limited had also issued the post-dated  cheques for the said amount for the date 20.09.2017 as seen from  page-10 of the application. Page-14 to page-18 of the Paper Book  contains the summary statement for the total outstanding against  M/s. Nathella Sampath Jewellery Private Limited. There is a  resolution to the effect at Page-19 of M/s. Nathella Sampath  Jewellery Private Limited regarding borrowing of a sum of  Rs.1,50,00,000/- (Rupees One Crore Fifty Lakhs only) from  M/s. Hemanth & Company. 

# 20. The statement of  verification/admission/rejection  and  determination of quantum of claims issued by the Liquidator at  Page-20 shows that there was an outstanding amount of  Rs. 1,35,00,000/- (Rupees One Crore Thirty Five Lakhs only) in the  books of the Corporate Debtor against which a claim of  Rs. 1,35,00,000/- was admitted and it was in the form of an  Unsecured debt. The said claim was admitted on 21.09.2020 after  collecting all the details from M/s. Hemanth & Company vide letter  dated 07.09.2020. 

# 21. Admittedly, there are Sale and Construction Agreements  dated 29.01.2020 between M/s. Antony Projects Private Limited  and M/s. Nathella Sampath Jewellery Private Limited i.e. Flat  Nos. 'B1', 'C1' & 'D1' @ GREENLANDS (page-51), but there is no  record indicating that the complete sale consideration amount is paid  by the Corporate Debtor to M/s. Antony Projects Private Limited.  In the Sale Agreement, the amount paid as Rs.1,00,000/- as  against 2,63,940/- towards purchase of the land has been shown  while in the Construction Agreement against the amount of  Rs.11,06,238/- (Rupees Eleven Lakhs Six Thousand Two Hundred  and Thirty Eight only), a sum of Rs.65,936/- (Rupees Sixty Five  Thousand Nine Hundred and Thirty Six only) has been shown as  received. Although there is a mail addressed to the Liquidator  dated 11.08.2020 containing the transaction details with M/s.  Hemant & Co. from Nathella Sampathu Chetty that three  apartments owned by Nathella Sampath Jewellery Private Limited  were registered to Hemant Family directly from M/s. Antony  Builders and the sale consideration for each flat, Hemant & family  have received from the buyer as Rs.12,00,000/- (Rupees Twelve  Lakhs only) per flat showing as the security value but neither the  statement of accounts nor the Balance Sheets reflect any such  transactions that the above flats had been put as security with  M/s. Hemant & family. These are three separate Sale Deeds dated  12.06.2017 executed by M/s. Antony Projects Private Limited in  favour of Mr. Hemant Mehta and Sandhya Mehta but these sale  deeds have been executed independently of the sale/construction  agreement with Nathella Sampath Jewellery Private Limited and  the developer (Antony Projects Private Limited).  

# 22. We find force in the contention of Respondent No. 4 & 5 that  they had not purchased any asset from or of the Corporate Debtor  and all the transactions were entered with Antony Projects Pvt. Ltd.  and not with the Corporate Debtor. There is no document to show  that the Corporate Debtor had anytime requested Antony Projects  Pvt. Ltd. to transfer the above flats to the Respondent No. 4 & 5  against the debt receivable from the Corporate Debtor. These flats  have subsequently been sold by Respondent No. 4 & 5 as seen  from the sale deeds executed by them in favour of the third  parties. Respondent No. 4 & 5 in their letter dated 03.10.2020  have also clarified that the properties as questioned are not in  anyway connected with the existing claims raised or loan given by  them to the loan documentation with Hemant & Co.. Though there  is a letter addressed by Hemant Mehta to Nathella Sampath  Jewellery regarding securitizing three flats in Medavakkam  purchased by the Corporate Debtor from Antony Builders and  registering the same in their names in lieu of part of business loan  availed by it from them of which market value is around 15 lakhs  each and on settlement of business loan, they agreed to pay the  stamp charges for transfer back to Nathella Sampath Jewellery  Private Limited but on scrutiny of the records we find that the sale  deeds are of date 12.06.2017 where independent transactions  have been shown without any reference to three flats. 

# 23. The  ledger/statement of account  maintained by the  Corporate Debtor with respect to Hemant & Co. does not show any  transactions relating to the said flat. It may be true that the  Corporate Debtor had entered into sale agreement and  construction agreement with M/s. Antony Builders in respect of  three flats but there is no entry or document to the effect that the  Corporate Debtor securitized those flats with Hemanth & Company  and registered those flats in the name of Hemanth & Family.  

# 24. The loan given by Respondent No. 4 & 5 is independent  against which a loan agreement was entered into on 21.12.2016.  A sum of Rs. 1,50,00,000/- was transferred to the Corporate  Debtor. Part amount of Rs.15,00,000/- was paid by the Corporate  Debtor on 28.03.2017 to Hemant & Co.. The Corporate Debtor had  issued post-dated cheques for the amount of Rs.1,50,00,000/- on  20.09.2017 which on presentation were dishonoured. Thus, the  disbursement amount of Rs.1,50,00,000/- (Rupees One Crore Fifty  Lakhs only) by R4 & R5 and receipt of the same as loan by the  Corporate Debtor is not at all denied by any party. 

# 25.  It is true that the said loan transaction was within the period  of two years preceding the Insolvency commencement date but on  perusal, we find that these transactions were done in the usual  course of business and the same cannot be said to be  preferential/avoidance or extortionate credit transactions.  It is  also true that the transactions carried an exorbitant rate of interest  but the same being the business transactions cannot be said to be  the extortionate credit transactions. In commercial business,  parties are free to make the transactions fixing the rate of interest  which do not require the interference of the Tribunal.  

# 26. For the aforesaid discussions, we find no merits in the  application filed by the Liquidator as to declaring the sale  transactions in respect of three flats as preferential, undervalued, extortionate or fraudulent/wrong trading. 

# 27. The application is accordingly dismissed with no orders as  to costs. 

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Madhavi Edible Bran Oils Pvt. Ltd. Vs. Immaneni Eswara Rao & 5 Ors.- It is held that the application filed at the instance of the Resolution Professional and Successful Resolution Applicant on the basis of avoidance is maintainable even after the approval of the Resolution Plan.

NCLAT (17.07.2023) In Madhavi Edible Bran Oils Pvt. Ltd. Vs. Immaneni Eswara Rao & 5 Ors. [Comp. App. (AT) (CH) (Ins) No. 401 of 2022 (IA Nos. 960 & 961/2022) and 388 of 2022 (IA Nos.924, 925 & 926/2022), (2023) ibclaw.in 466 NCLAT] held that;

• It is held that the application filed at the instance of the Resolution Professional and Successful Resolution Applicant on the basis of avoidance is maintainable even after the approval of the Resolution Plan.

Excerpts of the Order;

17.07.2023: This order shall dispose of two appeals bearing Company Appeal (AT) (CH) (Ins) No. 401/2022- Madhavi Edible Bran Oils Pvt. Ltd. Vs. Immaneni Eswara Rao & 5 Ors. (hereinafter referred to as 1st Appeal) and Company Appeal (AT) (CH) (Ins) No. 388/2022 -Immaneni Eswara Rao Erstwhile RP of M/s. Segno Ceramics Pvt. Ltd. Vs. Narahari Prasad Narasimha Rao Director (Suspended) & 4 Ors. (hereinafter referred to as 2nd Appeal).

# 2. Both the appeals have arisen from the common order dated 20.09.2022 passed by NCLT Amravati Bench dismissing I.A.(IBC) No. 108/2022 filed by the Successful Resolution Applicant from which Appeal No. 1 has arisen and I.A.(IBC) No. 94/2022 filed by IRP from which Appeal No. 2 has arisen.

# 3. In brief, M/s Trishla Minerals (Operational Creditor) filed an Application under Section 61 of IBC Code, 2016 against M/s Segno Ceramics Private Limited (Corporate Debtor) which was admitted on 22.09.2019. The Resolution Plan of the S.R.A. (Madhavi Edible Bran Oils Pvt. Ltd.), Applicant in I.A. No. 108/2022, was approved by the Tribunal on 17.03.2021. In both the appeals, Avoidance Application was filed by the Resolution Professional as well as S.R.A. The issue involved was as to whether the Avoidance Application can be decided, filed after the Resolution Plan is approved. This issue has been decided against the Appellant in both the appeals relying on a Single Bench Judgment of Delhi High Court rendered in M/s Venus Recruiter Private Limited Vs. Union of India and Ors. – 2020 SCC Online Del 1479.

# 4. It is an admitted case of the parties that the decision in the case of M/s Venus Recruiter Private Limited Vs. Union of India and Ors was reversed by Division Bench of Delhi High Court in the case – TATA Steel BSL Ltd. Vs. M/s Venus Recruiter Private Limited Vs. Union of India and Ors. reported in MANU/DE/0158/2023 and followed in the order passed by this Tribunal in CA(AT)(Ins) No. 437 of 2023, titled as Kapil Wadhawan Vs. Piramal Capital & Housing Finance Ltd. & Ors. in which it has been held that the application for avoidance is still maintainable dehors the approval of the Resolution Plan.

# 5. In view of the aforesaid facts and circumstances, once the decision of the learned Single Judge, on the basis of which the impugned order has been passed, has been reversed by the Division Bench of Hon’ble Delhi High Court in the case TATA Steel BSL Ltd. Vs. M/s Venus Recruiter Private Limited Vs. Union of India and Ors. (Supra) followed by a decision of this Tribunal in Kapil Wadhawan Vs. Piramal Capital & Housing Finance Ltd. & Ors., the question involved in this is no more res integra and decided as such and it is held that the application filed at the instance of the Resolution Professional and Successful Resolution Applicant on the basis of avoidance is maintainable even after the approval of the Resolution Plan.

# 6. In view of the above, both the appeals are hereby allowed. The impugned order passed in both the appeals are set aside and the matter is remanded back to the learned Tribunal to decide the applications on merits after hearing both the parties in accordance with law by passing a speaking order.

# 7. At this stage, while parting with this case, we make it clear that we have not observed even a word about merits of the case which shall be decided by the learned Tribunal in regard to both the applications i.e., I.A.(IBC) No. 108/2022 and I.A. (IBC) No. 94/2022. The parties are directed to appear before the learned Tribunal on 01.08.2023.

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Suresh Kumar Patni and Ors. Vs. Bank of Baroda and Anr. - A decision in a proceeding under Section 66 of the IBC does not influence or affect in any manner an independent consideration of Wilful Defaulter identification within the purview of the Master Circular.

High Calcutta (14.06.2023) In Suresh Kumar Patni and Ors. Vs. Bank of Baroda and Anr.[WPO/374/2023, (2023) ibclaw.in 552 HC] held that;

• Such adjudication by an adjudicating authority on the anvil of Section 66 is different in respect of yardsticks and tests from a Wilful Defaulter declaration under the Master Circular of the RBI. 

• The yardsticks and tests stipulated in the Master Circular are more extensive and a shade different from those stipulated in Section 66 and, as such, parallel carriage and/or disposal of the two proceedings is not barred by the law.

• A decision in a proceeding under Section 66 of the IBC does not influence or affect in any manner an independent consideration of Wilful Defaulter identification within the purview of the Master Circular.

Blogger’s comments;  The specific purpose is to identify wilful defaulters for the purpose of alerting bankers, financial institutions and other financial and commercial entities, which might have transactions in the corporate sphere, 

This raises an impertinent question as to what purpose will be served declaring CD as wilful defaulter after commencement of CIRP with subsequent liquidation of the CD, if not resolved during CIRP. Similar is the question for declaring a person as wilful defaulter during individual insolvency proceedings. 

Secondly, whether wilful defaulter proceedings are independent of the borrower ? This is amply clarified that guarantor can be declared wilful defaulter only if he fails to comply with the demand of the lender despite having sufficient means to make the payment of the dues. 

• # 2.1.2 Unit: The term ‘unit’ includes individuals, juristic persons and all other forms of business enterprises, whether incorporated or not. In case of business enterprises (other than companies), banks / FIs may also report (in the Director column of Annex 1) the names of those persons who are in charge and responsible for the management of the affairs of the business enterprise.

• # 2.6. As such, where a banker has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate. In case the said guarantor refuses to comply with the demand made by the creditor / banker, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a wilful defaulter.

Are we not forgetting the implications of section 32A, being the protections provided to successful resolution applicants or purchasers of assets during the liquidation process.

Excerpts of the Order;

The Court:- Learned counsel for the petitioners contends that the issuance of show cause notice by the Wilful Defaulter Identification Committee, which has been impugned herein, was patently without jurisdiction and non-maintainable. It is argued that in view of the pendency of an application under Section 95 of the Insolvency and Bankruptcy Code, 2016, read in the context of Section 96 thereof, there is an operative moratorium in respect of the debt in question, in connection with which the petitioners are sought to be declared to be wilful defaulters.

That apart, it is argued that a CIRP (Corporate Insolvency Resolution Process) was undertaken with regard to the corporate debtor and culminated in the approval of a resolution plan.

In view of the debt itself being thus resolved, that cannot be any further subsisting cause of action for declaration of wilful defaulter against the petitioners, who were merely a guarantors in respect of the same debt.

Moreover, a proceeding under Section 66 of the IBC had been initiated previously by the Resolution Professional, which culminated in favour of the petitioners. As such, the issuance of the show cause notice on the premises of the said debt is not maintainable at this juncture.

That apart, learned counsel argues that even on merits, the show cause has not disclosed any credible case against the petitioners for the purpose of declaration of wilful defaulter.

The above arguments are controverted by learned counsel for the respondent authorities. Learned counsel submits that the scope of operation of Sections 14 and 96 are different. Whereas Section 14 refers to the legal actions in respect of the corporate debtor, Section 96 speaks about legal actions or proceedings in respect of any ‘debt’.

It is submitted that a Coordinate Bench of this Court, in the judgment of Adarsh Jhunjhunwala Vs. State of Bank of India and Another reported at (2021) SCC Online Cal 3351, has already decided the issue. In terms of the ratio laid down herein, a moratorium under Section 96 is not sufficient to stall a show cause notice or a proceeding under the Master Circular of the RBI for the purpose of identification of a wilful defaulter.

Learned counsel also cites a judgment of a learned Single Judge of the Gujrat High Court (Ahmedabad Bench), which relied, inter alia, on the judgment of Adarsh Jhunjhunwala and held in same tune.

Learned counsel argues that the scope of operation of Section 96 is entirely different from a declaration of wilful defaulter proceeding. As such, the pendency of the one would not be a deterrent to a proceeding for declaration of wilful defaulter.

That apart, it is argued that the scope of operation of Section 66 of the IBC is on an entirely different footing than a wilful defaulter declaration. Learned counsel places the respective provisions for elaborating his arguments.

Even at the first blush, it is clear that the moratorium under Section 96 of the IBC refers to the ‘debt’ and not the ‘corporate debtor’.

Although learned counsel for the petitioners has argued that the debt being resolved upon the resolution plan being accepted with regard to the corporate debtor, the proceeding for identification of wilful defaulter cannot survive or be initiated, the interpretation sought to be lent in the observations of the learned Single Judge in Adarsh Jhunjhunwala, following the judgment of the Supreme Court in SBI Vs. Ramakrishnan is somewhat different from that sought to be portrayed by the petitioner.

In the said judgment of the Supreme Court reported at (2018) 17 SCC 394, the Supreme Court proceeded to hold that Sections 96 and 101, when contrasted with Section 14, would show that Section 14 cannot possibly apply to personal guarantor. An application filed under Part-III an interim moratorium or moratorium becomes applicable. The Supreme Court observed that first and foremost this is a separate moratorium applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part-III. Secondly, the protection of the moratorium under the said Section, it was held, is far better than that of Section 14. The difference in language was also cited to be a reason for the difference between said sections.

However, in paragraph 14 of the judgment of the learned Single Judge, while interpreting the judgment of the Supreme Court, it has been observed that the very purpose of separation of corporate insolvency under Part–II of the IBC from individual insolvency under Part-III must be understood to be separate and distinct and that they aim to achieve different ends. The principles applied in corporate insolvency cannot be applied to personal insolvency.

Such elaboration of the purpose of the distinction as held by the learned Coordinate Bench, with respect, is well within the periphery of sound logic and is accepted by this Court as well. The distinction sought to be drawn by the Supreme Court between a moratorium under Section 14 and that under Section 96 has no relevance in the present context.

The distinction sought to be drawn between said Sections is apparently between the legal proceedings against the ‘corporate debtor’ and legal action and proceeding in respect of a ‘debt’.

Learned counsel for the respondents is justified in contenting that the purpose of Section 96 may be gathered from the Repayment Plan envisaged in Section 105 of IBC.

The latter Section clearly stipulates a scheme of repayment, which would, obviously, be frustrated if any legal action or proceeding in respect of the same debt culminates in an order or is visited with an interim order in the meantime.

The entire scheme of the IBC itself indicates the combined political will not only to consolidate the laws related to insolvency, reorganization and liquidation/bankruptcy of all the persons including companies, individuals etc. under one statutory umbrella, but also for the time-bound resolution of defaults and seamless implementation of liquidation/bankruptcy and maximizing asset value as well as to encourage resolution as the first resort for recovery.

However, the purpose of the Master Circular of the RBI for identification of wilful defaulters is on a somewhat different footing. The latter is not for the purpose of providing an infrastructure for resolution of a debt or to facilitate recovery.

On the other hand, whereas the moratorium contemplated in Section 14 with respect to the corporate debtor itself facilitates a resolution of the debt and ensures that the business of the corporate debtor can thrive again, in respect of the Master Circular, the specific purpose is to identify wilful defaulters for the purpose of alerting bankers, financial institutions and other financial and commercial entities, which might have transactions in the corporate sphere, with regard to the dealings of certain persons who fall within the purview of the said Circular.

As such, the interim moratorium contemplated in Section 96 of IBC is rather for the purpose of protecting the debt in order to facilitate the ultimate scheme, that is, repayment plan within the contemplation of Section 105. However, mere protection of the debt or the corporate debtor cannot be equivalent to giving unnecessary and unwarranted protection to persons who are guilty of wilful default under the Master Circular of the RBI.

Insofar as Section 96 is concerned, the same concerns itself with the ‘debt’. Section 14, on the other hand, speaks about the corporate ‘debtor’. Thus the Sections respectively seek to protect each of the said entities.

However, the declaration of wilful defaulter is not to save or protect either of the two but to raise an alert in the banking system and the commercial sector of the country, so that persons having commercial transactions become aware of the fact that certain persons are Wilful Defaulters. As such, a guarantor, who stands on co-extensive footing with the debtor, cannot be absolved from a wilful defaulter proceeding at the inception, merely by citing the pendency of a proceeding under Section 96 of the IBC.

Insofar as Section 66 of the IBC is concerned, it is evident from the said Section itself that the area sought to be covered thereby is entirely distinct and different from a wilful defaulter proceeding. The provisions of Section 66 deal with fraudulent trading or wrongful trading and provide that if during the Corporate Insolvency Resolution Process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to default creditors of the corporate debtors or for any fraudulent purpose, the Adjudicating Authority, may on the application of the Resolution Professional, pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. Such adjudication by an adjudicating authority on the anvil of Section 66 is different in respect of yardsticks and tests from a Wilful Defaulter declaration under the Master Circular of the RBI. The yardsticks and tests stipulated in the Master Circular are more extensive and a shade different from those stipulated in Section 66 and, as such, parallel carriage and/or disposal of the two proceedings is not barred by the law.

A decision in a proceeding under Section 66 of the IBC does not influence or affect in any manner an independent consideration of Wilful Defaulter identification within the purview of the Master Circular.

In view of the above discussions, there is no reason for this Court to interfere, particularly in view of the fact that the present proceeding for declaration of wilful defaulter is yet at an inchoate stage and ought not to be disrupted at the stage of issuance of show cause, since the petitioners have ample opportunity to participate in the hearing fixed by the identification committee and, thereafter, if aggrieved by the said decision, to move the review committee with further rejoinder(s).

Hence, WPO/374/2023 is dismissed without any order as to costs.

However, since affidavits have not been invited, it is deemed that none of the allegations made by the parties against each other in the writ petition or in connection therewith are admitted by the other side.

No order as to costs.

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