Does the Adjudicating Authority or Resolution Professional enjoy any latitude in according preferential treatment to any creditor during ongoing CIRP : NCLAT

During CIRP if the Resolution Professional finds that any preferential transaction is made, then he is at liberty to file an Application under Section 43 of the I&B Code. At this stage, no adverse interference can be made. The order passed by the NCLAT New Delhi, in its decision in Phoenix ARC Private Limited v. Kotak Mahindra Prime Limited and Another (Company Appeal (AT) (Insolvency) No. 749 of 2020)  by Hon’ble shri Justice Bansi Lal Bhat (acting)

The facts pertaining to appeals were such that – The primary ground of the appeal as expressed in the appeal reminder is that the application under section 7filed vide C.P. (I.B.) No. 1503/KB/2018 was conceded by the AA on 06.11.2019, and the request forcing moratorium was a piece of a similar request of affirmation of the application under section 7 of IBC, 2016. Shri JitendraLohia was named as Interim Resolution Professional (hereinafter alluded as IRP) in the Reproved Order. He imparted the request in regards to the moratorium to all concerned including to the Branch Manager, ICICI Bank, RN MukherjeeBranch, Kolkatathrough letter dated 4/12/2019to close every one of the dynamic ECS against the A/C No. 00060022288 of Sunitti Papers Private Limited and to not make any installment from the said account except if the equivalent is supported or coordinated by the IRP.

The IRP too composed another email to Respondent no. 1 on 31.03.2020 and further messages to Respondent No. 1 and ICICI Bank on 1.04.2020, 15.04.2020 and 01.05.2020 helping them to remember the cash of the moratorium and to discount the measure of Rs. 2,24,792 got by ICICI Bank through four ECSs during the cash of the moratorium. One of these messages asked Kotak Mahindra Prime Limited to record their guarantee as Financial Creditor in the CIRP of Sunitti Papers Private Limited. Another update through email was sent on 01.05.2020 by the RP to Respondent No. 1. These messages ceaselessly asked Kotak Mahindra Prime Limited and ICICI Bank to discount the sum acknowledged during the moratorium time frame to the record of Corporate Debtor.

The main issue in this appeal is whether, during the cash of the moratorium which has been forced through Section 14 of the Insolvency and Bankruptcy Code, 2016 (hereinafter alluded to as IBC, 2016), can any sum be delivered or figured out from the all-out resources of the Corporate Debtor and whether the AA was defended in permitting the sum charged from the Corporate Debtor’s record in ICICI Bank.

The statute and the judicial pronouncement (supra) do not allow any preferential treatment to be given to any particular creditor. If one creditor is given preferential treatment then others should also get it to provide them a level playing field and the same treatment in the eyes of law. This would not only cause confusion in the eyes of possible Resolution Applicants thereby putting a spanner in the resolution of the company which is the ultimate objective under the IBC, 2016. It would also lead to the collapse of ‘waterfall mechanism’ regarding payment of liabilities to various stakeholders as is mandated and required under the IBC, 2016.

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