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Plea of Section 14(2) of the Insolvency and Bankruptcy Code, 2016: National Company Law Appellate Tribunal, Principal Bench, New Delhi

Failure to take the plea of Section 14(2) of the Insolvency and Bankruptcy Code, 2016 renders the case devoid of need for interference subsequently, as observed by the NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI, before a bench consisting of Justice Anant Bijay Singh, Member (Judicial); Ms. Shreesha Merla, Member (Technical), in the matter of PJ Network Pvt. Ltd. vs. Mr. Pardeep Kumar Lakhani [Company Appeal (AT) (Insolvency) No. 427 of 2021], on 09.12.21.

The facts of the case were that respondent filed an application under Section 60 (5) of the Insolvency and Bankruptcy Code, 2016, praying for the passing of orders to declare certain transactions of payments made by the corporate debtor to the respondent non est in law, and directing the respondent to pay the corporate debtor accordingly. A Company Petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by one M/s Mykind Vacations Pvt. Ltd. (Operational Creditor) against the M/s Dion Global Solutions Ltd. (Corporate Debtor) and the same was admitted by the Adjudicating Authority on 18.08.2020 wherein Mr. Pardeep Kumar Lakhani, respondent herein, was appointed Interim Resolution Professional.

The respondent herein took over the affairs of the Corporate Debtor in terms of Section 17 of the Insolvency and Bankruptcy Code, 2016 and Corporate Insolvency Resolution Process (CIRP) Regulations on 27.08.2020. In the 1st Committee of Creditors meeting, the respondent herein was confirmed as the Resolution Professional of the Corporate Debtor. Further case is that the said payments had been made even before the respondent herein took charge of the Corporate Debtor and the payments were made for the services availed by the Corporate Debtor prior to the CIRP period.

The respondent immediately, in order to recover the said amount transferred illegally to vendors of Corporate Debtor, filed the application and after hearing the parties the Adjudicating Authority vide order 18.03.2021 allowed the application filed by the Resolution Professional, respondent herein, and hence this appeal was preferred by PJ Networks Pvt. Ltd. through its Managing Director Mr. Sanjay Seth aggrieved and dissatisfied by the order dated 18.03.2021 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi, whereby and where under the application filed by the respondent herein, was allowed with directions the respondents herein to refund all payments received by them on 19.08.2020 and 20.08.2020 respectively details of the order.

The Learned Counsel for the Appellants, submitted that the appellant is rendering essential services i.e. “Information Technology Services” as envisaged under Section 14(2) of the IBC, 2016 read with Regulation 32 of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons), Regulations, 2016 (CIRP Regulations). It was thus argued that the payments for essential services were an exception to the general moratorium as they fell under Section 14(2) of Insolvency and Bankruptcy Code, 2016. Relying on precedents, the appellants contended that no prohibition had been made, nor bar imposed towards payment of current charges of essential services. Such payment is not covered by the order of ‘Moratorium’. Regulation 31 cannot override the substantive provisions of Section 14; therefore, if any cost is incurred towards supply of the essential services during the period of ‘Moratorium’, it may be accounted towards ‘Insolvency Resolution Process Costs’, but law does not stipulate that the suppliers of essential goods including, the electricity or water to be supplied free of cost, till completion of the period of ‘Moratorium’. It was further contended that the Adjudicating Authority the impugned order as in this matter is not accordance with law, hence liable to be set aside.

The Learned Counsel for the Respondents, submitted that the act of transfer of the amount of payment was during the effect of Section 14 of the Insolvency and Bankruptcy Code, 2016, it is synonymous to alienation of assets of the Corporate Debtor. It was further submitted that the instant appeal filed by the appellant was based on the presumption that the services being provided by it are “essential services” under Regulation 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. It was argued that it had been conveniently ignored that any of the services mentioned in Regulation shall only mean to be an essential service if such service is a not direct input towards the output produced or supplied by the Corporate Debtor. The respondents adduced evidence to supplement their argument that the appellant falls under this category of essential services which have a direct bearing on the operation of the Corporate Debtor’s output. The respondents relied on precedents to assert that in fact, such a service can only fit in the category of an “Operational Debt”. Therefore, it was argued that the appellant has a case only as an Operational Creditor at best and cannot presume that the services provided by it are “essential services” under Regulation 32 of the CIRP Regulations. The respondent argued that the Adjudicating Authority had considered all material aspects of the case and thus the appeal was liable to be dismissed.

The National Company Law Appellate Tribunal, Principal Bench, New Delhi, upon a careful perusal of records and submissions, concluded that the appellant herein has not taken the plea of Section 14(2) of the Insolvency and Bankruptcy Code, 2016 before the Adjudicating Authority which he has taken valid service which was rendered by the appellant fall within the definition of essential services. It was further noted that all payments had been made and therefore, the Adjudicating Authority had rightly passed the impugned order to refund all payments received by them on 19.08.2020 and 20.08.2020 respectively. The tribunal found no illegality in the actions of the Adjudicating Authority and thus no reason to interfere with the impugned order.

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Judgement reviewed by Bhargavi

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