IN THE NATIONAL COMPANY LAW TRIBUNAL

MUMBAI BENCH COURT III

I.A. 4844/2023
Intervention Petition 57/2023
I.A. 126/2024
In
C.P. No. (IB) 690/MB/C-III/2022
Under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 read with
Rule 11 of the NCLT Rules, 2016
I.A. No. 4844/2023
Rohit Ramesh Mehra )
Resolution Professional of Siti )
Networks Limited )
Having office at: )
Tower A 3403, Oberoi Woods, Oberoi )
Garden City, Goregaon (East), Mumbai )
Maharashtra – 400063 ) … Applicant

Intervention Petition No. 57/2023

Kavita Anand Kapahi )
91, Basant APTS, Cuffe Parade, )
Mumbai – 400005 ) … Applicant

Vs.

Rohit Ramesh Mehra )

Resolution Professional of Siti )
Networks Limited )
Having office at: )
Tower A 3403, Oberoi Woods, Oberoi )
Garden City, Goregaon (East), Mumbai )
Maharashtra – 400063 ) … Respondent

I.A. No. 126/2024

Asset Reconstruction Company (India) )
Limited )
Having office at: )
Floor 29, Senapati Bapat Marg, Dadar )
West, Mumbai, Maharashtra- 400028 ) … Applicant

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Vs.

1. Rohit Ramesh Mehra )

Resolution Professional of Siti )
Networks Limited )
Having office at: )
Tower A 3403, Oberoi Woods, Oberoi )
Garden City, Goregaon (East), Mumbai )
Maharashtra – 400063 ) … Respondent 1

2. Axis Bank Limited )

Having office at: )
Axis House, 8th Floor, Bombay Dyeing )
Mills Compound, Pandurang Budhkar )
Marg, Worli ) … Respondent 2

3. Aditya Birla Finance Limited )

Having office at: )
Indian Rayon Compound, Junagadh, )
Veraval, Gujarat- 362266 ) … Respondent 3

4. IDBI Bank Limited )

Having office at: )
IDBI Tower, WTC Complex, Cuffe Parade)
Mumbai, Maharashtra- 400005 ) … Respondent 4

5. RBL Bank Limited )

Having office at: )
Shahupuri, Kolhapur, Kolhapur, )
Maharashtra – 416001 ) … Respondent 5

6. IndusInd Bank Limited )

Having office at: )
2401, Gen Thimmayya Road, )
Contonment, Pune- 411001 ) … Respondent 6

7. Standard Chartered Bank Limited )

Having office at: )
Crescenzo, 4th Floor, Plot No. C-38/39, )
G Block, Bandra Kurla Complex, )
Bandra (East), Mumbai - 400051 ) … Respondent 7

8. Mr. Suresh Arora )

Unit No. 38, 1st Floor A Wing, Madhu )

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Industrial Estate, P.B. Marg, Worli )

Mumbai – 400013 ) … Respondent 8

9. Mr. Amitabh Kumar )

Unit No. 38, 1st Floor A Wing, Madhu )
Industrial Estate, P.B. Marg, Worli )
Mumbai – 400013 ) … Respondent 9

10. Kavita Anand Kapahi )

91, Basant APTS, Cuffe Parade, )
Mumbai – 400005 ) … Respondent 10

11. Shilpi Asthana )

B-5/61, Sector-4, Opposite Mother )
Divine School, Rohini North (West), New )
New Delhi - 110085 ) … Respondent 11

12. Mr. Suresh Kumar )

Unit No. 38, 1st Floor A Wing, Madhu )
Industrial Estate, P.B. Marg, Worli )
Mumbai – 400013 ) … Respondent 12

13. Yogesh Sharma )

Unit No. 38, 1st Floor A Wing, Madhu )
Industrial Estate, P.B. Marg, Worli )
Mumbai – 400013 ) … Respondent 13

IN THE MATTER OF
IndusInd Bank Limited … Financial Creditor

Vs

SITI Networks Limited … Corporate Debtor

Order pronounced on: 01.10.2024

Coram:
Hon’ble Ms. Lakshmi Gurung, Member (Judicial)
Hon’ble Sh. Charanjeet Singh Gulati (Technical)

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Appearances:
IA/4844/2023
For the RP : Sr. Adv. Dinyar Modan, Adv. Pooja Mahajan
a/w Shrishti Agnihotri a/w Arveena Sharma
a/w Adv. Saurabh B a/w Adv. Himanshu
Vidhani & Siddharth Rajput i/b Chandiok &
Mahajan

Intervention Petition 57/2023

For the Petitioner : Sr. Adv. Vikram Nankani, Adv. Rohit Gupta
a/w Ashish Pyasi a/w Adv. Anjali Shahi,
Adv. Aditya Krishna, Adv. Jinal Sethia i/b
Aendri Legal

For the RP : Sr. Adv. Dinyar Modan, Adv. Pooja Mahajan

a/w Shrishti Agnihotri a/w Arveena Sharma
a/w Adv. Saurabh B a/w Adv. Himanshu
Vidhani & Siddharth Rajput i/b Chandiok &
Mahajan

IA/126/2023
For the Applicant : Sr. Adv. Gaurav Joshi a/w Adv. Nausher
Kohli a/w Tanisha Choudhari a/w Ms.
Sandhya Iyer a/w Adv. Rishabh Chandra
a/w Mr. Neel Mehta i/b Vaish Associates

For Respondent 1/RP : Sr. Adv. Dinyar Modan, Adv. Pooja Mahajan
a/w Shrishti Agnihotri a/w Arveena Sharma
a/w Adv. Saurabh B a/w Adv. Himanshu
Vidhani & Siddharth Rajput i/b Chandiok &
Mahajan

For Respondent 2 : Sr. Adv. Venkatesh Dhond a/w Adv Rashmin

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Khandekar a/w Adv. Manmeet Singh, Adv.

Bhavika Deona, Adv. Karishini Khanna, Adv.
Manav Sharma i/b Sanaf & Partners

For Respondent 3 : Sr. Adv. Shyam Kapadia a/w Minika Jalan,

Pragya Dahiya and Hansha Daboo

For Respondent 4 : Mr. Abhijeet Swaroop, Mr. Akshay Sapre and

Mr. Rajvansh Singh

For Respondent 5 : Mr. Pulkit Sharma, Mr. Ashish Mehta a/w

Mr. Himanshu Singh, Mr. Aarya More i/b
Ethos Legal Alliance

For Respondent 6 : Sr. Adv. Ashish Kamat, Adv. Vishnu Shriram

a/w Adv. Shrishti Kapoor, Adv. Aaria Parekh
i/b Khaitan & Co

Per: Ms. Lakshmi Gurung, Member (Judicial)

ORDER

1. The Interlocutory Application (IA) bearing no. 4844/2023 has been filed
by Mr. Rohit Ramesh Mehra, the Resolution Professional (RP) of SITI
Networks Limited (Corporate Debtor) seeking certain clarificatory
directions regarding the insolvency commencement date in respect of the
Corporate Debtor for the purpose of treatment of unpaid liabilities as well
as for conducting CIRP related activities under the I&B Code and
applicable Rules and Regulations (herein after referred to as ‘the
Clarificatory IA).

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2. The Intervention Petition (IP) No. 57/2023 has been moved by Ms. Kavita
Kapahi, the Suspended Director of the Corporate Debtor seeking
intervention in IA/4844/2023 filed by the RP.

3. The Interlocutory Application (IA) No. 126/2024 has been filed by Asset
Reconstruction Company (India) Limited (ARCIL), one of the financial
creditors and member of the Committee of Creditors (CoC) of the Corporate
Debtor against the other financial creditors of the Corporate Debtor and
the Suspended directors, Chief Executive Officer and Company Secretary
of the Corporate Debtor. This IA/126/2024 has been filed post filing of
clarificatory IA by RP raising several issues relating to the insolvency
commencement date of the Corporate Debtor and regarding the treatment
of the monies withdrawn during the stay period by other financial
creditors of the Corporate Debtor. All these applications are filed under
section 60(5) of the Insolvency and Bankruptcy Code, 2016 (I&B Code)
read with Rule 11 of National Company Law Tribunal (NCLT) Rules, 2016.

4. The facts and issues involved in the above captioned interlocutory

applications are connected and similar hence, these applications were
heard together. Therefore, they are being disposed of by this common
order.

Brief Background:
5. The Corporate Insolvency Resolution Process (CIRP) was initiated against
the Corporate Debtor vide Order dated 22.02.2023 in CP/690/2022 and
Mr. Rohit Ramesh Mehra was appointed as the Interim Resolution
Professional (IRP).

6. The IRP made public announcement on 25.02.2023 in accordance with

sections 13 and 15 of the I&B Code, inviting claims from the creditors of
the Corporate Debtor to be submitted on or before 08.03.2023.

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7. Ms. Shilpi Asthana, one of the suspended directors of the Corporate

Debtor, preferred an appeal before the Hon’ble National Company Law
Appellate Tribunal (“Appellate Tribunal”) bearing Company Appeal (AT)
(Ins) No. 274/2023 against the admission order dated 22.02.2023 passed
by the Adjudicating Authority in which an interim order dated 07.03.2023
was passed by the Appellate Tribunal stating as follows:
“We have heard Counsel for the parties. There are arguable points
involved in this appeal.
Issue notice. Counsel for the Respondent accepts notice and prays for
time to file Reply. Let reply be filed within two weeks. List again on
29th March, 2023.
In the meantime, operation of the impugned order shall remain
stayed.”

8. It is submitted by the RP that pursuant to the interim order of the Hon’ble

Appellate Tribunal dated 07.03.2023, the management of the Corporate
Debtor was handed back to the directors of the Corporate Debtor.

9. The said appeal was finally heard and decided by the Hon’ble Appellate
Tribunal on 10.08.2023 dismissing the appeal. The operative part is
reproduced below:
“29. As a consequence of the aforesaid discussion, all the points
raised by the Appellant, in order to bring the date of default within
the ambit of section 10A of the Code fails and as a result thereof, all
the contentions of the Appellant are hereby rejected.
30. No other point has been raised.
31. In view of the aforesaid facts and circumstances, the present
appeal is found to be without any merit and the same is hereby
dismissed, though, without any order as to costs.”

10. The said order of Hon’ble Appellate Tribunal was challenged before the
Hon’ble Supreme Court in Civil Appeal no. 5340/2023 which was also
dismissed vide order dated 01.09.2023.

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11. The RP filed an application no. 4277/2023 under sections 12(2) and 60(5)
of the I&B Code read with Regulation 40 of the IBBI (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016 seeking exclusion of
period from 07.03.2023 till 15.08.2023 during which the Appellate
Tribunal had stayed the CIRP of the Corporate Debtor. The said IA was
allowed on 15.09.2023.

12. The RP submits that only after the final order of the Hon’ble Appellate
Tribunal dated 10.08.2023, IRP took back the control and management of
the Corporate Debtor on 16.08.2023. The Committee of Creditors (CoC)
was constituted on 24.08.2023 and the 1st CoC Meeting was conducted
on 01.09.2023 wherein the IRP was confirmed as the Resolution
Professional. Further, discussions were made regarding the liabilities of
the Corporate Debtor during the interim stay period. As there was no
clarity on the issue, the RP apprised the CoC about filing application
before Adjudicating Authority seeking appropriate clarifications.

IA/4844/2023
13. Submission of Resolution Professional:
I. Liabilities incurred during the Stay Period
a) The RP submitted that while the verification of the claims of the
creditors was in process, the Appellate Tribunal had passed an
interim order dated 07.03.2023 (Stay Order) staying the operation of
the admission order dated 22.02.2023 and the management of the
Corporate Debtor went back to the hands of the suspended directors
till the final disposal of the appeal by the Appellate Tribunal on
10.08.2023 when the appeal was dismissed.

b) When the RP resumed the duties on 16.08.2023, it was revealed that

during the stay period i.e. between 07.03.2023 till 16.08.2023,
various transactions had taken place between the Corporate Debtor
and its creditors. Further, the Corporate Debtor was carrying on its

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business operations in normal course as a going concern and was

incurring and discharging liabilities.

c) The RP further submitted that on account of the Stay order, the

operation of the Admission order dated 22.02.2023 was stayed,
therefore, there was no moratorium subsisting with respect to the
Corporate Debtor. However, the I&B Code does not deal with how the
liabilities incurred during the stay period are to be treated, under the
Resolution Plan.

d) The following liabilities have been incurred during the stay period:
i. Liabilities of Operational Creditors (Unpaid OC Liabilities):
As the Corporate Debtor was carrying on the normal course of
its business during the stay period and various liabilities in the
nature of operational dues were being incurred during this
period. Since the RP was not in the management of the
Corporate Debtor, the unpaid Operational Creditors’ liabilities
may also include unknown and/or contingent liabilities which
may not even be in the nature of CIRP costs.
ii. Liabilities of Financial Creditors (Unpaid Interest Claim):
The financial creditors have submitted their updated claims
including interest on the financial debt accrued from 22.02.2023
i.e. the date of the Admission order till 10.08.2023 i.e. the date
of resumption of CIRP.
iii. Liabilities of Other Creditors (Unpaid Other Liabilities):
Liabilities towards other creditors may also have been created
which remain unpaid.

II. Insolvency Commencement Date

a) The insolvency commencement date (ICD) of the Corporate Debtor is
22.02.2023, however, there was a stay order dated 07.03.2023
passed by the Hon’ble Appellate Tribunal which was vacated on
10.08.2023 with the dismissal of the appeal. It was submitted that

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significant amount of time has elapsed between the ICD i.e.

22.02.2023 and the Appellate Tribunal’s final order dated
10.08.2023.

b) The RP submitted that the CIRP related activities are yet to be

undertaken including appointment of registered valuers, submission
of Information Memorandum, preparation of provisional balance
sheet, etc. The I&B Code and applicable Regulations provide a set of
timelines for completion of each of the activities pertaining to the
CIRP of the Corporate Debtor. Further, the RP had no control over
the management of the Corporate Debtor during the stay period and
there has been significant changes in the financial position of the
Corporate Debtor.

c) In view thereof, the RP argued that it would be appropriate if

10.08.2023, being the date of Appellate Tribunal’s order upholding
the admission of Corporate Debtor into CIRP, be considered as the
Insolvency commencement date (ICD) for the purpose of conducting
various CIRP-related activities instead of 22.02.2023, being the
admission order under section 7 passed by the Adjudicating
Authority.

14. The RP has sought following reliefs in IA/4844/2023:

a) Allow the present Application;

b) Clarify that/direct that the Unpaid OC liabilities/Unpaid Interest

Claim (as defined in the Application)/Unpaid Other Liabilities (as
defined in the Application) is to be considered for admission/
verification as part of the claims of the respective creditors against
the Corporate Debtor (which will then be dealt with under the
resolution plan or liquidation, as the case may be, in accordance
with the Code);

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c) Clarify that/direct that for the purpose of conducting various CIRP

related activities under the Code read with the CIRP Regulations,
including valuation, conducting transactional audit for avoidance
transactions, preparation of Information Memorandum and
provisional balance sheet, updation of claims, etc. the relevant date
should be 10 August 2023 (being the date of resumption of CIRP of
the Corporate Debtor).

15. The said application 4844/2023 was heard and reserved for orders on
26.10.2023. However, the application was later de-reserved on
27.03.2024 on account of some clarification.

Intervention Petition No. 57/2023

16. This Intervention Petition has been filed by Ms. Kavita Kapahi, suspended
director of the Corporate Debtor, seeking intervention in IA/4844/2023
filed by RP. The following reliefs have been sought:
A. To allow the Applicant to intervene in the IA No. 4844 of 2023 filed
by the Respondent and add the Applicant as a party to the IA No.
4844 of 2023;
B. To direct the Respondent to serve a copy of IA No. 4844 of 2023
filed by the Respondent before this Tribunal;
C. To grant such other and further reliefs as may be deemed fit and
proper.

17. Submission of the Petitioner of Intervention Petition No. 57/2023:

a) It is submitted by the petitioner that during the stay period, monies were
withdrawn and distributed by the Axis Bank from the account of the
Corporate Debtor.

b) The Axis Bank was withdrawing the amounts from the bank accounts of
the Corporate Debtor, therefore, the petitioner pressed for interim order
in Company Appeal (AT) (Ins) No. 274/2023 against Axis Bank. On

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12.06.2023, following order was passed by the Hon’ble Appellate

Tribunal:
“In view of the peculiar facts of the case and in view of principle
of natural justice and balance of convenience till the next date of
hearing, the Axis Bank and Aditya Birla Finance Ltd. are
directed not to withdraw any amount from the account of
Respondent No. 2/ Corporate Debtor.”

c) During the second CoC Meeting, the suspended directors raised issues
relating to the dues owed to the Operational Creditors and also the
salaries of the employees of the Corporate Debtor and certain TDS
payments that are unpaid. Furthermore, Asset Reconstruction Company
(India) Limited (ARCIL), one of the financial creditors of the Corporate
Debtor, raised an issue that “in light of the order of the Hon’ble NCLT
dated 15.09.2023 granting exclusion of 161 days from the CIRP timelines,
the insolvency commencement dated (“ICD”) remains 22.02.2023. Hence,
the claims need to be as on ICD.” Objecting to the same, other two
creditors, namely, IDBI bank and Axis Bank stated that “the operation of
the Admission Order (imposing the moratorium) was stayed. Therefore,
there was no moratorium operating during the NCLAT Stay Period. Hence,
the stay period does not fall within the purview of CIRP period.”

d) Thereafter, the RP has assured the CoC that he shall file an application
seeking clarification from this Tribunal on the treatment of the
withdrawals during the stay period, however, the IA/4844/2023 has
been filed for clarification only regarding the unpaid OC liabilities,
interest claim and other liabilities and not regarding the withdrawals
during the stay period.

e) The Applicant contends that subsequent to the stay order dated

07.03.2023, the matter was taken up for hearing by the Appellate
Tribunal and the interim stay granted on 07.03.2023 was ordered to be
continued. However, during hearing on 01.05.2023, no direction as to

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the continuation of the stay was passed. Thus, stay on the operations of
the admission order was not continued after 01.05.2023.

f) The Applicant further submits that even during the stay period, the effect
of moratorium cannot be neglected and therefore the statement made by
the RP in the minutes of the 1st CoC Meeting that “during the NCLAT Stay
Period, there was no moratorium or CIRP operating” is against the settled
principles of law.

g) Thus, there has been a false representation by the RP before the CoC
Members in the CoC meetings. The RP has further concealed the fact
that the interim stay got vacated on 01.05.2023. Thus, the present
intervention petition is filed by the Applicant to bring on record the
correct facts.

Reply of the Resolution Professional to Intervention Petition:

18. The RP, in his reply, challenged the maintainability of the intervention
petition on the ground that it has been filed after IA/4844/2023 was
reserved for orders on 26.10.2023. Reliance is placed on Loramitra Rath
vs JM Financial Asset Reconstruction Company Ltd [Company Appeal
(AT) (Ins) No. 1359 & 1360 of 2023] wherein the Appellate Tribunal held
that no application could be moved after the final arguments were heard
and the case was closed for judgment. It is submitted that in the present
case, since this Tribunal has already reserved the clarification application
on 26.10.2023, the Intervention Petition No. 57/2023 is not maintainable.

19. The RP made following submissions opposing the intervention petition:

i) The intervener by way of intervention petition is trying to introduce a

new case by raising allegations which are not relevant for the
clarification application no. 4844/2023 since that was filed with
respect to the treatment of liabilities and interest accrued during the
Stay period.

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ii) The information regarding the stay of the admission order was widely
disseminated to the public, including the stock exchanges and other
authorities, by the directors of the Corporate Debtor. The directors
continued to represent to the public that the stay order is in operation
even after 01.05.2023. In the Annual Report of the corporate debtor
dated 30.05.2023, it was stated that the stay order was operational
as on 30.05.2023. Further, on 22.06.2023, one independent director
of the Corporate Debtor submitted his resignation to the board of
directors. On 08.08.2023, there was again a communication to stock
exchanges regarding the consideration of the unaudited financial
statements of the Corporate Debtor. Only on 10.08.2023 when the
appeal before the Appellate Tribunal was decided that the CIRP of the
Corporate Debtor resumed and the RP took back the control of the
management.

iii) Various applications were filed by the suspended directors before the
Appellate Tribunal and Hon’ble Supreme Court on behalf of the
Corporate Debtor even after 01.05.2023. IA/2138 was filed on
15.05.2023 in the Appeal pending before the Appellate Tribunal
complaining about the actions of lenders in not keeping the
Corporate Debtor as a going concern. IA/2340 was filed on
18.05.2023 seeking impleadment of certain lenders in IA/2340. On
25.05.2023, a Contempt Case (AT) no. 16/2023 was filed in the
Appeal contending contempt of stay order by the lenders in
appropriating certain amounts from Corporate Debtor’s account and
not releasing payments to some operational creditors.

iv) The Admission Order contains various orders including (i) initiation
of CIRP of the Corporate Debtor, (ii) appointment of Respondent as
the IRP, (iii) vesting of the management of the Corporate Debtor in
the Respondent (as the IRP), and (iv) order of moratorium with respect
to the Corporate Debtor. Vide the Stay Order, the Hon’ble Appellate
Tribunal stayed the operation of the entire Admission Order and did

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not merely stay the CIRP of the Corporate Debtor. Therefore, once the
Admission Order was stayed, the appointment of the IRP also stood
stayed and the board of directors of the Corporate Debtor (including
the Applicant) were overseeing the operations of the Corporate
Debtor.

v) As regards the allegations against the RP’s conduct in the insolvency

process of the Corporate Debtor, it is submitted that RP has
responded each and every query/concern of the stakeholders of the
Corporate Debtor and is running the CIRP of the Corporate Debtor in
a fair and transparent manner.

20. This Tribunal, on 27.03.2024, had de-reserved IA No.4844/2023 for

clarification. At the time of hearing of this intervention petition, the final
arguments had not concluded and the order was not yet reserved in IA
4844/2023. Intervener was allowed to make submissions as there were
statements by RP that during the stay period, it was the suspended
directors who were running the corporate debtor as going concern and not
the RP. Further, the proposed intervener has averred that amounts were
being withdrawn by the Axis Bank during the stay period. Therefore, to
understand the facts comprehensively, we allow the Petitioner herein to
intervene in IA/4844/2023 for the transactions during the stay period.
Accordingly, Intervention Petition No. 57/2023 is allowed, and the
submissions made therein are taken on record.

IA/126/2024
21. This IA has been filed by Asset Reconstruction Company (India) Limited
(ARCIL), a Financial Creditor of the Corporate Debtor, seeking the
following reliefs:
a) Declare that as codified under Section 5(12) of the Insolvency and
Bankruptcy Code, 2016, the date of commencement of Corporate
Insolvency Resolution Process of the Corporate Debtor is February

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22, 2023 and moratorium was in existence/subsistence from

February 22, 2023 till August 10, 2023;

b) Declare that the act of withdrawal of monies by Respondent No.

2 namely Axis Bank Limited and transferring the aforesaid
monies to the benefit of Respondent Nos. 3 to 6 amounts to
violation of moratorium in terms of Section 14(1)(b) of the
Insolvency and Bankruptcy Code, 2016;

c) Direct the Resolution Professional to maintain the account of the

Corporate Debtor in a bank other than Respondent Nos. 2, 4, 5 or
6 so that all future transactions are routed through some other
bank and there is no repeated occurrence of illegal withdrawal of
monies at the behest of Respondent Nos. 2 to 6;

d) Direct the Resolution Professional to examine the records and

books of accounts of the Corporate Debtor in a time bound manner
and report to this Tribunal as to the exact amount (whether Rs.
143.15 Crores or a higher amount as the case may be) having
been unlawfully withdrawn by Respondent No. 2 namely Axis
Bank Limited and distributed with Respondent No. 3 to 6 as well
as to any other third-party entity/entities (if any/if at all);

e) Direct the Resolution Professional to examine if such unlawful

withdrawal of monies and inaction on part of the Resolution
Professional will necessitate re- working on the admitted amounts
qua various financial creditors and if yes, then direct the
Resolution Professional to re-work upon the amount of admitted
claims qua various financial creditors, their revised voting right
percentage so that distributions can be made to various financial
creditors from the resolution plan or liquidation proceeds, as the
case may be, in the right proportion/ quantum /manner;

f) Direct Respondent Nos. 2 to 6 as well as other third-party

entity/entities (if any/ if at all) to refund/remit back the monies

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to the CIRP Bank account of the Corporate Debtor to the extent/in

the proportion as received by each of the aforesaid Respondent;

g) Pass an order directing the Respondents No. 2 to 6 to pay interest

at an appropriate rate/percentage as deemed appropriate by this
Tribunal on the respective principal amounts withdrawn/received
by them in contravention of moratorium;

h) Pass an interim order that the percent voting share qua various
financial creditors shall get crystallized subject to outcome of the
present Application for the purpose of distributions to be made to
various Financial Creditors pursuant to resolution plan(s)
submitted by Resolution Applicant(s) in the Corporate Insolvency
Resolution Process of the Corporate Debtor;

i) Pass an interim order that till the disposal of this application, this
Tribunal will not pronounce its order reserved in the I.A. No. 4844
of 2023 and/or pronounce its order reserved in the IA 4844 of
2023 only after considering the facts and circumstances of the
present application.

Submissions of the Applicant/ARCIL

22. ARCIL is a financial creditor of the Corporate Debtor and is a member of
the Committee of Creditors (CoC) having 32% of voting share.

23. It is submitted by ARCIL that there was an escrow account whereby Axis
Bank (Respondent 2/R-2) was acting as Escrow Bank and certain
amounts were lying in the credit of the Corporate Debtor. However, during
the stay period, all the monies were illegally withdrawn and
distributed/appropriated by Axis Bank from the account of the Corporate
Debtor and transferred to various other financial creditors i.e. Aditya Birla
Finance Limited (Aditya Birla/Respondent 3/R-3), IDBI Bank Limited
(IDBI/Respondent 4/ R-4), RBL Bank Limited (RBL/Respondent 5/R-

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5), and IndusInd Bank Limited (IndusInd/Respondent/R-6). The details

of the same are stated below:
Sr. Date of Details of Amount Withdrawn from the
No. Transaction Account of the Corporate Debtor
Withdrawn Transferred to Amount
By Benefit of Withdrawn
(Rs. in crores)
1 31.03.2023 Axis Bank 20.00
2 15.05.2023 Axis Bank 23.00
3 01.06.2023 IDBI Bank 6.36 crores
4 01.06.2023 IDBI Bank 16.91 crores
5 01.06.2023 IndusInd Bank 4.64 crores
6 01.06.2023 IndusInd Bank 12.45 crores
7 01.06.2023 RBL Bank 12.45 crores
8 01.06.2023 Axis Bank Axis Bank 27.63 crores
9 02.06.2023 RBL Bank 4.69 crores
10 05.06.2023 Aditya Birla 15 crores
Finance Ltd.
Total 143.15

24. It was further submitted that during the stay period, several Joint
Lenders' Forum meetings (JLM) had taken place on 25.04.2023,
04.05.2023 and 10.05.2023 and perusal of the minutes of the said
meetings would clearly reveal that the ARCIL as well as Respondents 3 to
6 and Standard Chartered Bank (SCB/Respondent 7/R-7) objected to
Axis Bank’s unilateral and unlawful decision of withdrawing monies from
the account of the Corporate Debtor. However, Respondents 2 to 6 who
had initially raised objections had subsequently stopped to do so when
Axis Bank had distributed the withdrawn monies into their accounts.

25. On 10.08.2023, when the Hon’ble Appellate Tribunal dismissed the appeal
the RP took over the control of the management of the Corporate Debtor
and requested the creditors to update their submitted claims, if there is
any amendment/ update and submit the revised claims as on 10.08.2023.
Thereafter, the RP prepared list of creditors with updated claims and
determined the voting percentage of the COC as follows:

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Sr. Financial Amount Amount Under Voting

No. Creditors Claimed Admitted Verification Right
(Rs. In (Rs. In (Rs. In
Crores) Crores) Crores)

1 ARCIL 364.77 339.93 24.85 32%

2 Axis Bank 240.85 223.72 17.13 21%
3 Aditya Birla 177.94 166.91 11.03 16%
4 IDBI Bank 169.66 151.28 18.38 14%
5 Standard 91.79 87.8 4.71 8%
Chartered Bank
6 RBL Bank 54.33 51.96 2.37 5%
7 IndusInd Bank 45.32 42.43 2.89 4%
8 Zee 148 88 60 0%
Entertainment
Enterprises
(Related Party)
Grand Total 1292.66 1151.30 141.36 100%

Insolvency Commencement Date cannot be changed

26. ARCIL submitted that the ICD remains 22.02.2023 and relied on the
judgment by NCLT, Allahabad Bench in the case of Jaypee Infratech
Limited [IA No. 217/2018 in CP(IB) No. 77/ALD/2017] wherein it was
held that insolvency commencement date cannot be changed.

27. Further, insolvency commencement date as defined under section 5(12) of

the Code, is a fixed date and a change of the same is not permissible under
the Code. Even the RP while filing the exclusion application had only
sought exclusion of the time period and not shifting of the insolvency
commencement date. The clarification application 4844/2023 filed by RP
seeking shifting of the ICD is a mala fide attempt to cover up and justify
the unlawful withdrawal of monies during the stay period.

28. It is a trite law as decided by the Hon’ble Supreme Court that there is a
difference between quashing of an order and stay on operation of an order.
Reliance is placed on Shree Chamundi Mopeds Ltd. vs. Church of South
India Trust Assnn. CSI Cinod Secretariat, Madras [1992 INSC 138]
wherein it has been held that stay of operation of an order only means
that the order which has been stayed would not be operative from the date

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of the passing of the stay order and it does not mean that the said order
has been wiped out from existence.

29. The Hon’ble Appellate Tribunal in Mukesh Kumar Jain vs Navin Kumar
Upadhyay & Anr [Company Appeal (AT) (Ins) No. 930-931/ 2023] has
observed that the stay of CIRP does not mean that suspended directors
should be put back in the management of the Corporate Debtor. Similarly,
in Ashok Kumar Tyagi vs. UCO Bank & Ors [Company Appeal (AT) (Ins)
No. 1323/2022], the Appellate Tribunal held that “in event on the stay of
the admission of Section 7 Application, the Corporate Debtor is allowed to
function and position as was existing prior to 28.10.2022 is restored, there
shall be no difference in staying an Order and quashing of an Order.”

Moratorium subsists even during stay period

30. The Applicant submits that the intent behind inserting the provision of
moratorium under the Code is to provide the Corporate Debtor a
calm/breathing period in which the Corporate Debtor seeks to reorganize
its business and Section 14(1)(b) of the Code seeks to ensure that the
assets of the Corporate Debtor, gets preserved and protected during the
CIRP Period and does not result in any loss of value of the assets of the
Corporate Debtor by virtue of any transfer, encumbrance, alienation or
disposal by the Corporate Debtor of any of its assets or legal right or
beneficial interest therein, as such kind of actions will defeat the very
object of the Code i.e. maximization of the value of assets of the Corporate
Debtor.

31. There are numerous instances wherein the CIRP admission order passed
by the Adjudicating Authority is challenged before the Appellate Authority
and subsequently, a stay is imposed on the operation of the impugned
order. If the interpretation that imposition of stay implies no subsistence
of moratorium is permitted, then not only will creditors illegally
misappropriate funds during such intervening period but even the
promoters of the corporate debtor can withdraw funds and assets of the

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corporate debtor on the ground that moratorium is not in force. This will
defeat the very purpose and intent behind the principle of moratorium as
well as the I&B Code and will derail the entire insolvency process.

32. The NCLT, New Delhi (Principal Bench) in Isgee Heavy Engineering Ltd
vs. Bhushan Energy Ltd. held that “…it is clarified that the moratorium
under section 14 of the Code, 2016 continues to be in operation till it is
revoked. Apparently, there is no order of revocation of moratorium.”

Differential treatment amongst creditors

33. Without prejudice the above submissions, the Applicant further submits
that there cannot be exceptional treatment to any creditor of the Corporate
Debtor during the CIRP. Under the I&B Code, once CIRP is initiated and
moratorium is imposed, the provisions of the Code shall have an
overriding effect, by virtue of section 238 of the Code, over all other laws
for the time being in force, including any contract/agreements and other
instruments executed between the parties, to the extent they are
inconsistent with the provisions of the Code.

34. In the present case, appropriation of money pertaining to pre-CIRP period

by Respondent 2 to 6 and that too in preference of other creditors
prejudicially affects the admitted claims qua various financial creditors,
their voting rights and the distribution which will be made to various
financial creditors from the resolution plan or liquidation proceeds, as the
case may be. The Respondents 2 to 6 have already submitted their claim
in the prescribed form and the RP has failed to clarify as to what
adjustment has been done by him in the admission of claims qua
Respondents 2 to 6 in view of the monies withdrawn during the course of
CIRP. Nonetheless, the Applicant contends that such withdrawal of
monies and such adjustment in admitting claims, if at all done by the RP,
is bad in law.

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35. The Insolvency and Bankruptcy Board of India (IBBI) had passed adverse
orders against the Insolvency Professionals who have either contravened
or failed to report the contravention of section 14 of the I&B Code. Further,
IBBI vide its Facilitation Letter dated 13.11.2020 also prohibited
appropriation of monies towards dues owed to creditors during CIRP.

Submissions of the Respondents

36. There are total 13 Respondents in IA/126/2024. Respondent 1 is the

Resolution Professional, Respondents 2 to 7 are the financial creditors of
the Corporate Debtor, Respondent 8 to 13 are the suspended directors of
the Corporate Debtor. The RP/Respondent 1 and the Respondents 2 to 6
have filed their replies. No replies have been filed by Respondents 7 to 13.

Submissions of RP/Respondent 1

37. The averments and contentions raised in the present application were
never taken by ARCIL/Applicant any time before, including during the
stay period when the issues relating to stay period and clarification
application were discussed and deliberated amongst the members of the
CoC including ARCIL.

38. The Applicant being one of the financial creditors of the Corporate Debtor
was well aware of the stay order and the subsequent taking over of the
Corporate Debtor by the suspended directors and all the events that had
transpired thereafter. However, the Applicant had never, before the filing
of this IA/126/2024, approached either this Tribunal or the Appellate
Tribunal or the Hon’ble Supreme Court contending that the RP, in
violation of the I&B Code, had unlawfully handed over the control and
management of the Corporate Debtor to the suspended
directors/promoters and that such handover had caused any prejudice to
the Applicant.

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39. As stated by the Applicant itself, there were various Joint Lenders’ Forum
Meetings (JLM) conducted amongst the creditors with the directors of the
Corporate Debtor wherein discussions were made regarding certain
transactions/manner of transactions and also on calling of a
restructuring plan from the directors/promoters discussed in the JLMs.
Though in the meetings, the Applicant suggested maintaining a status quo
however nowhere it has pressed that the management of the Corporate
Debtor should be reinstated back in the hands of the RP.

40. Further, it can be seen from the disclosures made in the Annual Reports
that during the stay period, the directors of the Corporate Debtor were
representing the Corporate Debtor before various judicial forums such as
TDSAT, Delhi High Court, Arbitration, etc. Furthermore, on perusal of the
26th JLM, it can be seen that the director of the Corporate Debtor had in
fact agreed seeking vacation of the Stay order and reinstatement of the
IRP. However, the Appellate Tribunal orally directed the Counsel to file
appropriate application to this effect. Notably, no such application has
been filed. Thus, it is clear that the Appellate Tribunal was aware of the
fact that the suspended management had the control of the Corporate
Debtor but no order modifying the stay order or reinstating the IRP was
passed by the Appellate Tribunal. This itself makes it evident that by
virtue of the stay on admission order, the appointment of RP was also
stayed.

41. Prior to the stay order dated 07.03.2023, the RP has received claims (as
on 22.02.2023) from some creditors of the Corporate Debtor. It was during
the verification process of the claims that the Appellate Tribunal passed
the stay order thereby halting the CIRP process of the Corporate Debtor.

42. It is submitted that vide the stay order, the Appellate Tribunal had stayed
the entire Admission Order and not merely the CIRP of the Corporate
Debtor. Section 13 of the I&B Code states that the Adjudicating Authority,
after admission of application under section 7, 9, or 10 shall be order:

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A. Declare a moratorium for the purposes referred to in Section 14;

B. Cause public announcement to be issued under section 15;
C. Appoint an interim resolution professional in the manner laid
down in section 16.

43. The RP referred to the report of Bankruptcy Law Reform Committee, 2015
(“BLRC Report”) which notes that “This calm period is implemented in two
orders passed by the Adjudicator. One is an order passing a moratorium on
all recovery actions or filing of new claims against the enterprise. The other
is by putting in place an insolvency professional who has the powers to take
over the management and operations of the enterprise.” It further notes that
“An insolvency professional who is registered by the Bankruptcy and
Insolvency Board (Section 4.4) is explicitly appointed by the Adjudicator
during the bankruptcy and insolvency resolution process”.

44. Thus, the Admission Order dated 22.02.2023 contained various orders i.e.
(i) initiation of CIRP of the Corporate Debtor, (ii) appointment of
Respondent 1 as the IRP of the Corporate Debtor, (iii) vesting of the
management of the Corporate Debtor in the IRP, (iv) order of moratorium
with respect to the Corporate Debtor. Thus, with the stay of the entire
Admission Order, the appointment of IRP and the moratorium on the
affairs of the Corporate Debtor was also stayed, and the suspended
management took over the control of the Corporate Debtor.

45. As per the Black Law Dictionary, “to stay an order or decree means to hold
it in abeyance, or refrain from enforcing it.” It is submitted that when the
very order appointing the Respondent No. 1 as the IRP was stayed (i.e. in
abeyance), Respondent 1 could not have continued to act on the said order
or taken any steps as an IRP of the Corporate Debtor in the absence of a
further order or direction by this Tribunal or the Appellate Tribunal.

46. Reliance is placed on BPL Limited vs. R. Sudhakar [(2004) 7 SCC 2019]
wherein the Hon’ble Supreme Court had explained the legal effect of a stay
order in a situation where a stay is given on an underlying order that gave

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jurisdiction to the Industrial Tribunal. It is submitted by the RP that where

the underlying order itself is stayed then during such stay period, neither
could an application be filed before the Tribunal nor any step could be
taken by the Tribunal. Thus, applying the same principle here, the RP
submits that since he derives his powers to act as an IRP from the
admission order dated 22.02.2023 which itself was stayed by the
Appellate Tribunal, the RP could not continue to act as an IRP of the
Corporate Debtor.

47. The RP has also cited the case of Ashok Kumar Tyagi vs. UCO Bank &
Anr [2022 SCC OnLine 4588] wherein the Appellate Tribunal had
observed that “… in view of the stay of the order dated 28.10.2022, the IRP
cannot carry on any functions since the IRP was appointed by the same
order and by the stay of the Order, no further actions can be taken by the
IRP.” Further, in Mr. Punit Garg vs. Ericsson India Pvt. Ltd. [Company
Appeal (AT) (Ins) No. 255-256/2018, the Appellate Tribunal directed the
RP to allow the management of the corporate debtor to function during
the stay period.

48. Another instance is the case of Jaypee Infratech Limited I.A. 87575 of
2017 in SLP (Civil) No. 24001-24402 of 2017. The insolvency
commencement date was 09.08.2017 when the IRP took the control and
management of Jaypee. Later on, the IRP handed back the control of
Jaypee to the management on stay order being passed by Hon’ble
Supreme Court on 04.09.2017. Thereafter, one of the creditors
approached the Hon’ble Apex Court for modification of the stay order, and
accordingly, the stay order was specifically modified, and directions were
given to the IRP to take over the management of Jaypee Infra. Further, the
Hon’ble Supreme Court noted that “all suits and proceedings instituted
against JIL shall in terms of Section 14 (1) (a) remain stayed as we have
directed the IRP to remain in management”.

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49. Even in para 5.3.1 of the BLRC Report, it is mentioned that “the motivation
behind the moratorium is that it is value maximising for the entity to
continue operations even as viability is being assessed during the IRP.
There should be no additional stress on the business after the public
announcement of the IRP. The order for the moratorium during the IRP
imposes a stay not just on debt recovery actions, but also any claims or
expected claims from old lawsuits, or on new lawsuits, for any manner of
recovery from the entity. The moratorium will be active for the period over
which the IRP is active.”

50. Thus, evidently there was no moratorium during the stay period and the
RP had not acted contrary to law in handing over the management and
control of the Corporate Debtor back to the suspended directors. It is
further submitted that no party has sought any clarification or
modification of the Stay Order before the Appellate Tribunal concerning
the moratorium or the re-instatement of the RP in the management of the
Corporate Debtor.

51. As regards the clarification application no. 4844/2023, it is submitted

that the after taking over the management and control of the Corporate
Debtor post the dismissal of the appeal on 10.08.2023, the RP came to
know that the suspended management had carried on the business in its
normal course and was incurring and discharging its liabilities. Since
these liabilities were incurred during the stay period, there was a need for
clarity and directions regarding its treatment. Moreover, the Code does not
deal with the aforesaid liabilities. Thus, after discussions with the CoC
members, the said clarification application has been filed. No objection
whatsoever was raised by the Applicant at the time of filing the
application.

52. With respect to the insolvency commencement date, it is submitted that

the Code read with the applicable regulations require determination of the
financial position of the Corporate Debtor for the purposes of Information

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Memorandum (including balance sheets) to be ‘as on the insolvency

commencement date’. Further, the cut-date for valuation and evaluation
of avoidance transactions is the ‘insolvency commencement date’. In the
present case, a significant amount of time has elapsed between the
insolvency commencement date i.e. 22.02.2023 and the resumption of
CIRP of the Corporate Debtor (10.08.2023) and during this intervening
period, various transactions and events involving the Corporate Debtor
and its creditors have taken place. In view of the same, the RP, in his
clarification application no. 4844/2023 had prayed to consider
10.08.2023 as the cut-off/relevant date for CIRP-related activities and at
no point of time, the RP had sought shifting or change of the Insolvency
commencement date, which undisputedly is 22.02.2023.

53. Moreover, the Applicant has relied on Jaypee Infratech (supra) judgment
to contend that the cut-off date for deciding claims remains the insolvency
commencement date and cannot be changed. However, it is submitted
that the facts in Jaypee Infratech (supra) are distinguishable for the
reason that the management and control of Jaypee was with the IRP and
by the Hon’ble Supreme Court’s order dated 09.08.2019, the moratorium
was in operation whereas in the present case, the operation of the
Corporate Debtor was taken over by the suspended directors and various
transactions have taken place during the stay period. While the financial
creditors had appropriated certain amounts from the account of the
Corporate Debtor, notably, multiple payments were made by the
management during the stay period to various operational creditors. If the
stay period has to be considered as moratorium period, then all such
payments will also need to be reversed.

54. Regulation 13 of the CIRP Regulations requires verification of the claim to

be as on the ICD. However, the said regulation does not envisage a
situation where after the ICD, the Admission Order (including the
appointment of the IRP and moratorium) is itself stayed in toto on account
of which the directors/management and not the IRP is running the day-

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to-day affairs of the CD. It is submitted that in view of Section 5(13) of the
Code that defines CIRP costs, liabilities incurred by the directors/
management during the Stay Period ought not to constitute CIRP Costs.
However, it is also important to deal with such liabilities and therefore, it
is submitted that 10.08.2023 be considered as the cut-off date for claims
verification so that such liabilities and claims can be submitted to the
IRP/RP by the creditors for verification and admission.

Submissions of Respondents 2 to 6:

55. Some of the submissions made by the RP were also restated by the
Respondents, however, since they are already reproduced in the foregoing
paragraphs, we are not inclined to repeat them unless needed. Other
submissions by the Respondents 2 to 6 have been clubbed together and
reproduced below:

No moratorium in effect during stay period

56. The Hon’ble Supreme Court in V P Sheth vs. State of MP & Ors. (2004
13 SC 767) held that “As has been held in Chamundi Mopeds Case, the
effect of stay is that order is not operative.” Applying the same principle to
the present case, it will be clear that on passing of the stay order, the
NCLT order became inoperative and since moratorium was granted vide
the said order which got stayed, there was no moratorium in subsistence
when the money was appropriated.

57. Reliance is also placed on Mars Remedies Private Limited vs. BDH
Industries Limited [Civil Appeal No. 5170/2022], Chitra Sharma &
Ors. Vs. Union of India & Ors [Civil Appeal No. 744/2017], Ashok
Kumar Tyagi (supra) and Punit Goenka (supra) to emphasize on the
submission that when the order of admission was stayed, there was also
a stay on the moratorium declared in terms of section 14 of the Code.

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58. It is submitted that in the Joint Lenders Forum Meetings (JLMs), the
Applicant suggested that the payments to operational creditors of the
Corporate Debtor, towards their both prior to and after the Admission
Order, be made by the Corporate Debtor. Meaning thereby that even as
per the Applicant, the Admission Order had no effect on the payment of
dues owed to operational creditors (i.e., the dues post the Admission Order
need not be paid as CIRP cost). Similarly, payments in fact have been
made to certain operational creditors.

59. Furthermore, the erstwhile management made multiple filings before the
stock exchange on behalf of the Corporate Debtor, had conducted Board
meetings wherein certain critical actions were approved and filings were
also made before the Telecom Disputes Settlement and Appellate Tribunal
seeking directions against the lenders of the Corporate Debtor to release
payments to Star India Limited. These facts portray that during the stay
period, the Corporate Debtor was not under any sort of moratorium
whether under I&B Code or any other law.

Issue of moratorium raised as an afterthought

60. Between 07.03.2023 to 10.08.2023, multiple Joint Lenders Meeting(s)
(JLM) were held between the financial creditors of the Corporate Debtor
and the representatives of the Corporate Debtor to inter alia discuss the
resolution of the Corporate Debtor’s account, wherein the Corporate
Debtor was represented by its Board of Directors (BoD). In fact, ARCIL had
even made a request for a resolution plan during one of the JLMs but had
never objected to the Axis Bank’s act of appropriating monies towards its
dues on the alleged ground of breach of moratorium. The only objection
taken by the Applicant throughout was that the appropriation of monies
was not done with the approval of all lenders. This is also clear from the
minutes of the JLMs.

61. It is further submitted that even the suspended management or any other
party did not allege that the moratorium was in subsistence. In fact, Civil

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Appeal before Hon’ble Supreme Court, the ex-director had also admitted
that the moratorium was not in subsistence.

62. Senior Advocate Mr. Ashish Kamat, appearing for IndusInd Bank/R-6,
submitted that during the JLM held on 25.04.2023, it was brought to the
attention of the lenders of the Corporate Debtor that Axis Bank had
utilized a sum of Rs. 20 crores towards its dues, which was objected by
all the lenders including the Applicant, however, the said objection was
limited to the unilateral action of Axis Bank appropriating the funds from
the Corporate Debtor’s Account without seeking approval of other lenders.
At no point, the issue regarding moratorium was raised.

63. Similarly, it was never the Applicant’s case that the moratorium was in
subsistence at any point of time after the Stay Order was passed, as the
Applicant in the JLM on 23.06.2023, had itself requested that it be
permitted to appropriate funds towards its dues. Furthermore, the issue
regarding appropriation of monies has in any event attained finality as the
Civil Appeal filed before Hon’ble Supreme Court, despite containing
arguments in this regard, has been dismissed by the Hon’ble Supreme
Court.

Applicant is estopped to file the present application

64. Since the issue of moratorium was never raised any time prior to the filing
of the present application despite having knowledge of all the events that
had transpired during the stay period, the Applicant cannot be now
permitted to take a complete reverse stand.

65. It is a trite law that parties cannot be permitted to approbate and

reprobate at the same time and take contrary stands. Reliance has been
placed on Suzuki Parasrampuria Suitings Private Limited vs Official
Liquidator of Mahendra Petrochemicals Limited [(2018) 10 SCC 707],
Joint Action Committee of Air Line Pilots’ Assn. of India vs. DGCAS,
Premlata Alias Sunita vs. Naseeb Bee and Ors [(2022) 6 SCC 585].

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Respondents have exercised their contractual rights

66. The funds lying in the account of the Corporate Debtor are charged in
favour of the lenders as a security interest and the appropriation of the
amounts towards outstanding NPA (Non-Performing Asset) dues of the
lenders is essentially a means of enforcement of security interest.
Therefore, the Axis Bank/R-2, in exercise of its contractual rights to
enforce the security over bank balance has appropriated the funds lying
in the account of the Corporate Debtor maintained with the Axis Bank.

Applicability of Principle of Res Judicata

67. Ld. Counsel appearing for IDBI Bank submits that the issue raised by
ARCIL in IA/126/2024 regarding the appropriation of funds by
Respondents 2 to 6 had been earlier raised by Ms. Shilpi Asthana, ex-
director of Corporate Debtor as well as the Applicant herein, in the
proceedings before the Appellate Tribunal, had already prayed for the
exact same relief or directions against the Respondents 2 to 6 herein to
refund the funds appropriated from the account of the Corporate Debtor
before the Appellate Tribunal. However, despite hearing the matter at
length, the Hon’ble Appellate Tribunal went ahead to only decide the
Company Appeal and closed all pending applications. Since, the issues
herein are identical, the same is res judicata and is covered under
Explanation V and VI of Section 11 of Code of Civil Procedure, 1908 (CPC).

68. The Respondents have relied on Experion Developers Private Limited v

Himanshu Dewan and Others 2023 SCC OnLine SC 1029 wherein the
following observations were made:
“31. No doubt, in Pawan Gupta’s case (supra), this Court had not
exercised the power or jurisdiction conferred by Article 136 of the
Constitution of India, but had exercised its appellate power, which
would, in terms of the ratio in Kunhayammed (supra), becomes the
final order which is executable. Thus, the dismissal of the appeal
by this Court in the case of Pawan Gupta (supra), had put a finality
and an end to the litigation in the said case. To this extent,

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therefore, the application of the general principle of res judicata

would bar the party from raising the plea once again. The order
passed by this Court, on the application of the principle of judicial
discipline, bars and prevents any tribunal or parties from
canvassing or taking a view which would have the effect of re-
examination of the issues and points determined in the case of
Pawan Gupta (supra) inter-se the parties to the decision. However,
dismissal of the appeal would not operate as res judicata in the
case of the respondents against the appellant as they were not
parties to the said case, and the proceedings initiated by Pawan
Gupta were fact specific and not in a representative capacity.

69. It is submitted that in the present case, the Appellate Tribunal’s Order
dated 10.08.2023 stands merged with the Hon’ble Supreme Court’s Order
dated 01.09.2023 keeping in account the Doctrine of Merger as
propounded in Kunhayammed & Others v. State of Kerala & Anothers,
(2000 (6) SCC 359) the relevant paragraph of which is reproduced below:
“44. (i) Where an appeal or revision is provided against an order
passed by a court, tribunal or any other authority before superior
forum and such superior forum modifies, reverses or affirms the
decision put in issue before it, the decision by the subordinate
forum merges in the decision by the superior forum and it is the
latter which subsists, remains operative and is capable of
enforcement in the eye of law.”

70. Thus, relying upon the above judgments, the Respondents contend that
the dismissal of the appeals by the Appellate Tribunal and the Hon’ble
Supreme Court had put a finality and an end to the litigation on the
Subject Issue which cannot be raised again in view of the principles of res
judicata.

71. The Applicant took a conscious decision of accepting the Order dated
10.08.2023 by not challenging the same before the Hon’ble Supreme

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Court and as such has rested its rights permanently to challenge the
appropriation of funds by Respondents 2 to 6. Therefore, the Applicant
after accepting the Order dated 10.08.2023, is estopped from challenging
the action of Respondents 2 to 6. Moreover, the said issue was once again
in question before the Hon’ble Supreme Court in the Civil Appeal but the
Hon’ble Supreme Court, after hearing the parties and considering the
issues raised by the parties, decided not to grant the reliefs prayed for.
Thus, the said issue has attained finality.

ANALYSIS & FINDINGS

72. Heard Ld. Counsel for the parties and the Resolution Professional and
perused the record.

73. We have given our thoughtful consideration on the submissions made by

the parties in all the three captioned applications . After careful analysis
of the submissions of the parties, the following points of determination
emerge in the present case:

I. Whether the Insolvency Commencement Date (ICD) i.e. 22.02.2023

can be changed to a later date owing to the stay of the CIRP
Admission Order and Whether the cut-off date for the purpose of
CIRP-related activities be taken as 10.08.2023 instead of
22.02.2023?

II. Whether moratorium was in subsistence during the stay period i.e.
between 07.03.2023 till 10.08.2023?

III. Whether the RP was correct is handing over the management and
control of the Corporate Debtor back to the suspended directors?

IV. Whether the withdrawal and appropriation of monies by the

Respondents 2 to 6 during the stay period is tenable in law?

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74. Issue I: On ‘Insolvency Commencement Date’

74.1 We note that the RP, in IA 4844/2023, had prayed for considering
10.08.2023 (i.e. the date of dismissal of appeal by Appellate Tribunal
and the resumption of CIRP) for the purpose of carrying out all the
CIRP-related activities. However, Senior Advocate Mr. Gaurav Joshi,
representing ARCIL, the Applicant in IA/126/2024, has vehemently
objected to the same and argued that the insolvency commencement
date which is statutorily defined under section 5(12) of the I&B Code
cannot be changed.

74.2 Section 5(12) of the I&B Code defines ‘insolvency commencement

date’ as “the date of admission of an application for initiating
corporate insolvency resolution process by the Adjudicating Authority
under sections 7, 9 or section 10, as the case may be.” The said
definition clearly shows that insolvency commencement date is the
date of admission of a petition filed under sections 7, 9 or 10.
Moreover, we agree with ARCIL’s submission that there exists no
provision in the Code which contemplates shifting of the insolvency
commencement date.

74.3 We see that all the parties herein are ad idem on the fact that stay
of CIRP of the Corporate Debtor does not change the ‘insolvency
commencement date’ which is fixed i.e. the date of admission of the
Corporate Debtor into CIRP which is 22.02.2023 in the present case.
Thus, in view the statutory definition, we are satisfied that the
insolvency commencement date cannot be changed and since there
is consensus amongst the parties on the same, we do not deem it
necessary to delve into this issue any further.

74.4 Under the provisions of the I&B Code, various activities are referred
to the Insolvency Commencement Date (ICD). There is no provision
to change/shift the ICD. Therefore, we are unable to agree that
merely for the purpose of CIRP activities, CIRP date can be changed/

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shifted to a future date in view of the stay order of the Hon’ble

Appellate Court. This does not gel with the scheme and intent of the
legislation. We agree with the submission made on behalf of ARCIL
that stay order does not wipe out the main order. Stay order is in
force till the final appeal is pending. All actions in the interregnum
would be subject to the final outcome of the appeal. Once the final
order is passed dismissing the appeal, all legal consequences will
follow including the insolvency commencement date which cannot
be changed. Therefore, the submission of the RP for cut-off date for
the purpose of CIRP-related activities be taken as 10.08.2023 is
rejected. Accordingly, issue I is decided.

75. As regards the other issues listed in para 73 above, we are of the view that
before delving into the same, it is pertinent to decide on the preliminary
question i.e. whether the said issues are covered by the principle of Res
Judicata?

76. On Applicability of Doctrine of Res Judicata

76.1 Ld. Counsel, representing Axis Bank/R-2, relied on an order passed

by Hon’ble NCLAT in IA No. 2558/2023 filed by the suspended
directors seeking directions from Hon’ble NCLAT for reversal of the
money appropriated by the Banks. The Hon’ble NCLAT had disposed
of the said application without passing any order. The suspended
directors, therefore, preferred an appeal before the Hon’ble Supreme
Court which appeal also stood dismissed. Thus, according to the
Respondents, since the issues raised herein is identical to those
raised in IA/2558 and other connected applications filed before the
Appellate Tribunal, the same has attained finality. In view of the
applicability of the principle of Res Judicata, no directions can now
be passed to bring back the money.

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76.2 It is useful to reproduce section 11 of CPC:

“Section 11 – Res Judicata
No Court shall try any suit or issue in which the matter
directly and substantially in issue has been directly and
substantially in issue in a former suit between the same
parties, or between parties under whom they or any of them
claim, litigating under the same title, in a Court competent to
try such subsequent suit or the suit in which such issue has
been subsequently raised, and has been heard and finally
decided by such Court.
Explanation I.-- The expression former suit shall denote a suit
which has been decided prior to a suit in question whether or
not it was instituted prior thereto.
Explanation II.-- For the purposes of this section, the
competence of a Court shall be determined irrespective of any
provisions as to a right of appeal from the decision of such
Court.
Explanation III.--The matter above referred to must in the
former suit have been alleged by one party and either denied
or admitted, expressly or impliedly, by the other.
Explanation IV.-- Any matter which might and ought to have
been made ground of defence or attack in such former suit
shall be deemed to have been a matter directly and
substantially in issue in such suit.
Explanation V.-- Any relief claimed in the plaint, which
is not expressly granted by the decree, shall for the
purposes of this section, be deemed to have been
refused.
Explanation VI.-- Where persons litigate bona fide in
respect of a public right or of a private right claimed
in common for themselves and others, all persons
interested in such right shall, for the purposes of this

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section, be deemed to claim under the persons so

litigating .
Explanation VII.-- The provisions of this section shall apply to
a proceeding for the execution of a decree and references in
this section to any suit, issue or former suit shall be construed
as references, respectively, to a proceeding for the execution
of the decree, question arising in such proceeding and a
former proceeding for the execution of that decree.
Explanation VIII.-- An issue heard and finally decided by a
Court of limited jurisdiction, competent to decide such issue,
shall operate as res judicata in a subsequent suit,
notwithstanding that such Court of limited jurisdiction was
not competent to try such subsequent suit or the suit in which
such issue has been subsequently raised.”

76.3 It is the case of the Respondents that since no relief was granted by
the Appellate Tribunal and the Hon’ble Supreme Court in respect of
the appropriation of amounts by R-2 to R-6 despite hearing the
arguments in this behalf, the matter had attained finality and is
covered under Explanation V and VI of Section 11 of Code of Civil
Procedure, 1908 (CPC). To substantiate this contention, the
Respondent 4 relied on Experion Developers Private Limited v
Himanshu Dewan and Others 2023 SCC OnLine SC 1029 and
Kunhayammed & Others v. State of Kerala & Anothers, (2000
(6) SCC 359).

76.4 Senior Counsel Mr. Gaurav Joshi, appearing for ARCIL/Applicant,

relied on Ebix Singapore Private Limited vs. Committee of
Creditors of Educomp Solutions Limited & Anr [(2022) 2 SCC
401] wherein it has been held that “Res judicata cannot apply solely
because the issue has previously come up before the court. The
doctrine will apply where the issue has been “heard and finally
decided” on merits through a conscious adjudication by the court.”

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76.5 Mr. Joshi further cited the case of Union of India vs. Pramod
Gupta (D) by L.Rs. and Ors [MANU/SC/0549/2005] wherein the
Hon’ble Supreme Court has held as follows:
“The principle of res judicata would apply only when the lis was
inter-parties and had attained finality in respect of the issues
involved. The said principle will, however, have no application
inter alia in a case where the judgment and/or order had been
passed by a court having no jurisdiction therefore and/or in a case
involving pure question of law. It will also have no application in
a case where the judgment is not a speaking one.”

76.6 We note that several applications were moved before the Appellate
Tribunal amidst the pendency of the Company Appeal No.
274/2023. To summarize, IA/2138/2023 was filed on 15.05.2023
by Ms. Shilpi Asthana who is one of the suspended directors of the
Corporate Debtor, seeking directions regarding the appropriation of
monies by the Respondents 2 to 6. However, on 18.05.2023, Ms.
Asthana filed a Contempt Case No. 16/2023. When IA/2138 was
taken up for hearing on 18.05.2023, it was submitted on behalf of
Ms. Asthana that in view of the contempt application filed, she is
not pressing IA/2138. Accordingly, the Appellate Tribunal
dismissed IA/2138 as not pressed.

76.7 On 31.05.2023, though the Contempt Case was heard at length, it

was submitted on behalf of Ms. Asthana that she would file an
appropriate application seeking vacation of stay on the Admission
Order and consequently, the Contempt Case No. 16/2023 was
dismissed as withdrawn. We observe that the JLM held on
23.06.2023 also took a note of the same.

76.8 Thereafter, another IA No. 2558/2023 was filed by Ms. Asthana

seeking similar reliefs as sought in the Contempt Case and it is

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stated that submissions on appropriation of funds were made and

prayer seeking reversal of the transaction was also sought. However,
despite hearing the matter at length, the Appellate Tribunal did not
pass any order in the pending applications and decided only the
Company Appeal No. 274/2023 on merits and dismissed the appeal
vide order dated 10.08.2023 and closed all the pending applications.
Hence, it cannot be said that the issues raised in IA/2558 and other
applications were ‘decided on merits’ and therefore, the same has
not attained finality to attract the doctrine of res judicata.

76.9 Moreover, when the impugned order of dismissal was challenged

before the Hon’ble Supreme Court, it is submitted that Respondent
11, who is one of the suspended directors of the Corporate Debtor,
had also challenged the Appellate Tribunal’s decision to not
grant/decide on the interim reliefs in respect of appropriation of
monies by R-2 to R-6. Again, the Hon’ble Supreme Court decided to
not pass any order in respect of the appropriation of monies by R-2
to R-6 but only decided the appeal on merits and all other
applications and submissions were closed with the dismissal of the
Civil Appeal 5340/2023 on 01.09.2023.

76.10 A bare perusal of the events transpired during the pendency of the
Appeal shows that even though the Appellate Tribunal and the
Hon’ble Supreme Court had heard the parties on the issue of
appropriation of funds from the account of the Corporate Debtor
which is also evident from an interim order dated 12.06.2023
wherein the Appellate Tribunal prevented R-2 from withdrawing
monies any further, however, we are also conscious that these
applications were closed with the dismissal of the Appeals.
Moreover, it is also undisputed that the orders of Appellate Tribunal
and Hon’ble Supreme Court dismissing the Appeals have not dealt
with any of the issues raised in the present applications.

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76.11 We refer to the judgment of Hon’ble Supreme Court in Prem

Kishore & Ors. Vs. Brahm Prakash & Ors [Civil Appeal No. 1948
of 2013] decided on 29.03.2023, relevant paragraphs are extracted
below:
“34. The general principle of res judicata under Section 11 of the
CPC contain rules of conclusiveness of judgment, but for res
judicata to apply, the matter directly and substantially in issue in
the subsequent suit must be the same matter which was directly
and substantially in issue in the former suit. Further, the suit
should have been decided on merits and the decision should have
attained finality. Where the former suit is dismissed by the trial
court for want of jurisdiction, or for default of the plaintiff’s
appearance, or on the ground of non-joinder or mis-joinder of
parties or multifariousness, or on the ground that the suit was
badly framed, or on the ground of a technical mistake, or for failure
on the part of the plaintiff to produce probate or letter of
administration or succession certificate when the same is required
by law to entitle the plaintiff to a decree, or for failure to furnish
security for costs, or on the ground of improper valuation, or for
failure to pay additional court fee on a plaint which was
undervalued, or for want of cause of action, or on the ground that
it is premature and the dismissal is confirmed in appeal (if any),
the decision, not being on the merits, would not be res judicata in
a subsequent suit.
xxx
55. The moot question is whether the eviction petition was
dismissed for default which dismissal would certainly bar a fresh
suit if instituted on the same cause of action. The words, which
we have quoted above, certainly do not mean dismissal either on
merits or on default. It was argued before us that the order should
only be taken to mean what an order under Order 17 can possibly
be and nothing else. We are not impressed by such submission.
The order did not purport to be one of dismissal for default or on

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merits and it cannot be taken to mean other than what it purported

to be. It is in ordinary phraseology; not legal phraseology and it
cannot be divested of its ordinary meaning. Its ordinary meaning
is that the proceeding was closed and the suit would not count as
a pending one. The later description would be redundant if the
order was one of final disposal of the suit. The order did not
purport to be a final disposal of the suit. It merely stopped the
proceedings. It did nothing more. This is not final decision of the
suit within the meaning of Order 9 Rule 8 and Order 17 Rule 3 of
the CPC.”

76.12 It is clear from the above that the Hon’ble Supreme Court has held
that merely closing a proceeding in a case cannot be construed as a
final decision on merits to attract the principle of res judicata under
section 11 of CPC. Following the above judgment, we hold that the
issues raised in the present applications are not covered by the
principle of Res Judicata under section 11 of CPC. Having said this,
we are inclined to decide the remaining issues.

77. Issue II: On subsistence of moratorium during the Stay Period

77.1 In the present case, the admission order under section 7 of I&B
Code was passed on 22.02.2023 against which the suspended
directors preferred an appeal before the Appellate Tribunal. On
07.03.2023, the Appellate Tribunal stayed the admission order in
following terms:
“In the meantime, operation of the impugned order shall
remain stayed.”

77.2 Ld. Counsel appearing for Respondents contended that, as per the
scheme of the I&B Code, 2016, when a section 7 petition is admitted
by the Adjudicating Authority, various orders have to be passed
under different sections of the Code. Thus, along with CIRP
initiation order passed under section 7, orders appointing the

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Resolution Professional and declaration of moratorium are also

passed. Thus, according to Ld. Counsel, three orders are passed on
the date of admission of a Company Petition under section 7 of the
I&B Code, 2016.

77.3 For ease of reference, the relevant sections of I&B Code are
reproduced:
“7. Initiation of corporate insolvency resolution process
by financial creditor.
xxx
(5) Where the Adjudicating Authority is satisfied that – (a) a
default has occurred and the application under sub-section (2)
is complete, and there is no disciplinary proceedings pending
against the proposed resolution professional, it may, by order,
admit such application; or (b) default has not occurred or the
application under sub-section (2) is incomplete or any
disciplinary proceeding is pending against the proposed
resolution professional, it may, by order, reject such
application:
Provided that the Adjudicating Authority shall, before rejecting
the application under clause (b) of sub-section (5), give a notice
to the applicant to rectify the defect in his application within
seven days of receipt of such notice from the Adjudicating
Authority.
(6) The corporate insolvency resolution process shall
commence from the date of admission of the application under
sub-section (5).”

“13. Declaration of moratorium and public

announcement. –
(1) The Adjudicating Authority, after admission of the
application under section 7 or section 9 or section 10, shall, by
an order –

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(a) declare a moratorium for the purposes referred to in section

14;
(b) cause a public announcement of the initiation of corporate
insolvency resolution process and call for the submission of
claims under section 15; and
(c) appoint an interim resolution professional in the manner as
laid down in section 16.
(2) The public announcement referred to in clause (b) of sub-
section (1) shall be made immediately after the appointment of
the interim resolution professional.”

“14. Moratorium. –
(1) Subject to provisions of sub-sections (2) and (3), on the
insolvency commencement date, the Adjudicating Authority
shall by order declare moratorium for prohibiting all of the
following, namely: -
(a) the institution of suits or continuation of pending suits or
proceedings against the corporate debtor including execution
of any judgement, decree or order in any court of law, tribunal,
arbitration panel or other authority;
(b)transferring, encumbering, alienating or disposing off by the
corporate debtor any of its assets or any legal right or
beneficial interest therein;
(c) any action to foreclose, recover or enforce any security
interest created by the corporate debtor in respect of its
property including any action under the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (54 of 2002);
(d)the recovery of any property by an owner or lessor where
such property is occupied by or in the possession of the
corporate debtor.

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“16. Appointment and tenure of interim resolution

professional. - (1) The Adjudicating Authority shall appoint
an interim resolution professional on the insolvency
commencement date.”

77.4 According to the Ld. Senior Counsel, when the application under
section 7 of the Code was stayed by the Appellate Tribunal, the order
appointing the Resolution Professional and declaration of
moratorium was also stayed which means that there was no
moratorium from 07.03.2023 onwards. It is the case of the
Respondents that there is no automatic moratorium since it is not
related to a statutory provision but is an outcome of the order. Thus,
when the order of admission was stayed, moratorium is also stayed.

77.5 Per contra, Senior Advocate Mr. Gaurav Joshi appearing for
ARCIL/Applicant, though while agreeing that separate orders are
passed under the Code with respect to admission of CIRP,
appointment of RP and declaration of moratorium, contended that
it is only the operation of CIRP that has been stayed whereas the
order appointing RP as well as the order declaring moratorium
subsists even during the stay. It is the case of the ARCIL that the
RP ought not to have handed over the management and control of
the Corporate Debtor back to the suspended directors.

77.6 The Respondents have argued that the Applicant had taken the plea
of moratorium as merely an afterthought since the understanding
of all the parties of the stay order was that no moratorium is
applicable from 07.03.2023, and therefore, the RP handed over the
management to the suspended board and the Respondents 2 to 6
had appropriated the monies under the strength of their contractual
entitlement. It is argued by the Respondents that several Joint
Lenders’ Forum Meetings were conducted during the stay period
which was also attended by the Applicant/ARCIL and the Applicant

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was in full consonance with the appropriation of monies. The only

issue was that the appropriation was done in a manner prejudicial
to the Applicant and had there been distribution in favour of the
Applicant, the Applicant would not have moved the application no.
126/2024. The Respondents have relied on certain cases pertaining
to principle of estoppel and the doctrine of approbation and
reprobation. However, we are of the considered view that, as
Adjudicating Authority, having cognizance of the issue of
withdrawal of money during the stay period, it is imperative for us
to decide on the issue irrespective of the applicability of rule of
estoppel in the present case.

77.7 The parties have relied on a catena of judgments and have

strenuously argued on the legal effect of a stay order. We have given
our anxious consideration on the case laws relied upon by the
parties. It is foremost to deal with the case of Shree Chamundi
Mopeds Ltd. vs. Church of South India Trust Assnn. CSI Cinod
Secretariat, Madras [1992 INSC 138] wherein the Hon’ble
Supreme Court had discussed on the legal effect of staying an order
passed under the Sick Industrial Companies (Special Provisions)
Act, 1985 and the moratorium imposed under section 22 thereof.
The relevant paragraphs are extracted below:
“Sub-s. (1) of Section 22 which alone has relevance to these
questions provides as under:
“22. Suspension of legal proceedings, contracts etc.
(1) Where in respect of an industrial company, an inquiry
under section 16 is pending or any scheme referred to
under section 17 is under preparation or consideration or
a sanctioned scheme is under implementation or where an
appeal under section 25 relating to an industrial company
is pending, then, notwithstanding anything contained in
the Companies Act, 1956 (1 of 1956) or any other law or
the memorandum and articles of association of the

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industrial company or any other instrument having effect

under the said Act or other law, no proceedings for the
winding-up of the industrial company or for execution,
distress or the like against any of the properties of the
industrial company or for the appointment of a receiver in
respect thereof shall lie or be proceeded with further,
except with the consent of the Board or, as the case may
be, the Appellate Authority.”

A perusal of the aforesaid provision shows that it is

applicable, in respect of an industrial company, where (i) an
inquiry under Section 16 is pending; or (ii) a scheme referred
to in Section 17 is under preparation or E consideration; or
(iii) a sanctioned scheme is under implementation; or (iv)
where an appeal under Section 25 relating to the industrial
company is pending. In that event no proceedings for winding
up of the industrial company or for execution, distress or the
like against any of the properties of the industrial company
or for appointment of receiver in respect thereof shall lie or be
proceeded with further. This injunction is, however, subject
to the exception that the proceedings can be instituted or
proceeded further with the consent of the Board or the
Appellate Authority. In other words, there is no absolute bar
to the institution of proceedings referred to in s. 22(1) and for
the operation of the bar imposed by the said section it is
necessary that one of the matters referred to therein should
be pending so that directions may be obtained either from the
Board or the Appellate Authority for institution of or
continuation of a proceeding of the type specified in s. 22(1).

In the instant case, the proceedings before the Board under

ss. 15 and 16 of the Act had been terminated by order of the
Board dated April 26, 1990 whereby the Board, upon

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consideration of the facts and material before it, found that

the appellant-company had become economically and
commercially non-viable due to its huge accumulated losses
and liabilities and should be wound up. The appeal filed by
the appellant-company under s. 25 of the Act against said
order of the Board was dismissed by the Appellate Authority
by order dated January 7, 1991. As a result of these orders,
no proceedings under the Act was pending either before the
Board or before the Appellate Authority on February 21, 1991
when the Delhi High Court passed the interim order staying
the operation of the Appellate Authority dated January 7,
1991. The said stay order of the High Court cannot have the
effect of reviving the proceedings which had been disposed
of by the Appellate Authority by its order dated January 7,
1991. While considering the effect of an interim order staying
the operation of the order under challenge, a distinction has
to be made between quashing of an order and stay of
operation of an order. Quashing of an order results in the
restoration of the position as it stood on the date of the
passing of the order which has been quashed. The stay of
operation of an order does not, however, lead to such a result.
It only means that the order which has been stayed would
not be operative from the date of the passing of the stay order
and it does not mean that the said order has been wiped out
from existence. This means that if an order passed by the
Appellate Authority is quashed and the matter is remanded,
the result would be that the appeal which had been disposed
of by the said order of the Appellate Authority would be
restored and it can be said to be pending before the Appellate
Authority after the quashing of the order of the Appellate
Authority. The same cannot be said with regard to an order
staying the operation of the order of the Appellate Authority
because in spite of the said order, the order of the Appellate

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Authority continues to exist in law and so long as it exists, it

cannot be said that the appeal which has been disposed of
by the said order has not been disposed of and is still
pending. We are, therefore, of the opinion that the passing of
the interim order dated February 21, 1991 by the Delhi High
Court staying the ·operation of the order of the Appellate
Authority dated January 7, 1991 does not have the effect of
reviving the appeal which had been dismissed by the
Appellate Authority by its order G dated January 7, 1991 and
it cannot be said that after February 21, 1991, the said
appeal stood revived and was pending before the Appellate
Authority. In that view of the matter, it cannot be said that
any proceedings under the Act were pending before the
Board or the Appellate Authority on the date of the passing
of the order dated August 14, 1991 by the learned Single
Judge of the Karnataka High Court for winding up of the
company or on November 6, 1991 when the Division Bench
passed the order dismissing O.S.A. No. 16 of 1991 filed by
the appellant-company against the order of the learned
Single Judge dated August 14, 1991. B Section 22(1) of the
Act could not, therefore, be invoked and there was no
impediment in the High Court dealing with the winding up
petition filed by the respondents.”
(Emphasis Provided)

77.8 The law on the effect of stay order is well-settled as can be perceived
from the above judgment. Shree Chamundi Mopeds (supra) clearly
distinguishes between the outcome of quashing of an order and stay
of an order. This precedent comes in aid to us in determining the
questions raised in the present Applications. In the above-
mentioned case, it was held by Hon’ble Supreme Court that stay of
the dismissal order could not be construed as revival of the appeal
and it was made clear that the order of dismissal was very much in

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existence even during the stay period. The above observations

clearly show that stay of an order does not amount to setting aside
of the order and therefore, the same continues to exist in the eyes
of law. In this context, the Hon’ble Supreme Court made a precise
interpretation of section 22 of SICA and held that moratorium under
section 22 is applicable only when any case is pending before the
BIFR. In the above-mentioned case, since the dismissal order was
merely stayed and no circumstances set out in section 22 was in
force, the Hon’ble Supreme Court held that there was no
moratorium. This patently shows that there is no sojourn of
moratorium during the stay of an order.

77.9 Going by the observations in Chamundi Mopeds (supra), it can be

interpreted that in the present case, stay of the admission order
dated 22.02.2023 does not amount to quashing of the same and
since the admission order is not wiped out, the moratorium under
section 14 of I&B Code which is declared on the insolvency
commencement date i.e. the date of admission of application under
section 7 of the Code, was in subsistence.

77.10 In this context, it is imperative to look at the following observations

of the Appellate Tribunal in Mukesh Jain Kumar vs. Navin Kumar
Upadhyay & Anr [Company Appeal (AT) (Ins) No. 930-931/
2023], decided on 19.12.2023:
“12. … The judgment of this Tribunal in ‘Ashok Kumar
Tyagi’ (supra) on which reliance has been placed by the
Adjudicating Authority does not lay down any proposition
that when order of initiating CIRP has been stayed, the
result would be to handover the Corporate Debtor to the ex-
management by Resolution Professional. In ‘Ashok Kumar
Tyagi’ (supra), this Tribunal noticed the difference between
stay of an order and quashing of an order.

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13. The judgment of ‘Ashok Kumar Tyagi’ (supra) of this

Tribunal does not support the order of the Adjudicating
Authority that in view of the stay of CIRP, Resolution
Professional has to handover charge of the Corporate
Debtor. Any such result of stay of the CIRP shall be
disastrous since if the management against whom the CIRP
has been initiated is handed over the charge, it is prone to
misuse the assets and the assets shall be diminished,
which may adversely affect the creditors of the Corporate
Debtor. In view of the stay of the CIRP, it is true that the
Resolution Professional cannot take any further steps in the
CIRP of the Corporate Debtor and has to stay his hand from
proceeding any further in the CIRP and await the order of
the Appellate Court. The direction to the Resolution
Professional in the impugned order to handover the
Corporate Debtor to the ex-management is wholly
unjustified and has to be set aside.”

77.11 The observations in Mukesh Kumar Jain (supra) settles the

position of a stay order under the I&B Code. Further, as regards the
reinstatement of the position of the Corporate Debtor prior to the
date of admission of section 7 petition, the Appellate Tribunal in
Ashok Kumar Tyagi vs. UCO Bank & Anr [Company Appeal (AT)
(Ins) No. 1323/2022 has specifically held as follows:
“18. The difference between stay of an Order and
quashing of any Order are well settled as noticed above.
In event on the stay of the admission of Section 7
Application, the Corporate Debtor is allowed to function
and position as was existing prior to 28.10.2022 is
restored, there shall be no difference in staying an Order
and quashing of an Order. What the Appellants are
asking/praying is restoration of the position as was prior
to admission of Section 7 Application. We can not accept

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such request made by the Appellant. The Admission Order

of Section 7 Application has only been stayed and not
quashed thus the Corporate Debtor can not be permitted to
function as it was functioning prior to 28.10.2022. 19.
However, in view of the stay of the Order dated
28.10.2022, the IRP can not carry on any functions since
the IRP was appointed by the same order and by stay of
the Order, no further action can be taken by the IRP in
pursuance of the Order dated 28.10.2022. The Order
dated 28.10.2022 has become inoperative in view of the
Interim Order of this Tribunal dated 07.11.2022. Hence the
Appellant is right in his submission that IRP can not
discharge any function after the Impugned Order dated
07.11.2022.
20. … In the facts of the present case, we are of the view
that difficulties in running the corporate debtor as a going
concern, can be mitigated by issuing following directions:
I. The Chief Executive Officer (CEO)/Officers of the
Corporate Debtor authorized to operate the Bank
Accounts are permitted to make payment of wages of
workers, workmen and employees as was being paid
earlier to passing of the order dated 28.10.2022. The
payment of Electricity Dues and other necessary
expenses may also be carried out by the officials as
mentioned above subject to submitting all details of
expenditure on weekly basis to the IRP as well as to
the Suspended Managing Director of the Corporate
Debtor.”

77.12 It is crystal clear from the observations in Ashok Kumar Tyagi

(supra) that the Corporate Debtor cannot be reinstated back to the
position as it was prior to the admission of the section 7 petition.
Similarly, for any further actions too, liberty was given to approach

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the Appellate Tribunal and the order also specifically mentions that
settlement, if any, shall require the leave of the Appellate Tribunal.
This amply clarifies the legal effect of stay order in so far as the cases
under I&B Code are concerned.

77.13 Sr. Advocate Mr. Shyam Kapadia, counsel appearing for R-3, relied
on Vrundavan Residency Pvt Ltd V/s Mars Remedies Pvt Ltd
[CP(IB) No. 300/2020] and submitted that while a CIRP admission
order was stayed by Hon’ble Supreme Court, another Company
Petition was entertained and admitted which would indicate that
moratorium is not in force when an admission order is stayed. In
this regard, it is seen that in the CP(IB) No. 300/2020 was proceeded
further with due sanction of the Hon’ble Supreme Court and came
to be admitted by the Adjudicating Authority when another
Company Petition against the same Corporate Debtor was stayed
and pending before the Hon’ble Supreme court. It is pertinent to
note the observations of Hon’ble Supreme Court while permitting
the continuation of proceedings in CP/300/2020:
“The main contention of the corporate debtor who is the
appellant in the above main appeal is that there cannot be
two CIRPs simultaneously going on against the same
debtor. The said contention is legally well-founded. But
today, both CIRPs are on hold. This is despite the fact that
the order passed in favour of the proposed intervenor in
his own application under Section 7 IBC, by the NCLAT has
attained finality and there is no impediment for the CIRP
initiated by the proposed intervenor to proceed further.

It is understandable that if the CIRP initiated by the

respondent in the above civil appeal is on track. If it is not
on track, at least the other CIRP should be allowed to
proceed. The Corporate Debtor cannot be allowed to have
benefit of the best of both the worlds.

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Therefore the intervention application is disposed of

clarifying that the intervenor may again move an
application before the NCLT for restoration and the NCLT
shall pass fresh orders keeping in mind the above
observations.”

77.14 On perusal of the above observations of Hon’ble Supreme Court,

though it is seen that directions were given to go ahead with the
insolvency proceedings while another Company Petition of the same
Corporate Debtor was stayed and pending for adjudication, we are
of considered opinion that the Hon’ble Supreme Court’s decision
was keeping in view the peculiar facts and circumstances of that
case.

77.15 Further, the Hon’ble Supreme Court had directed for restoration of
a Company Petition when another company petition was stayed and
pending before it only for the reason that the creditors cannot be
baffled interminably due to the stay of a CIRP order which clearly
indicates that the intention was to protect the creditors who are the
ultimate risk-bearers when a company goes into
insolvency/liquidation. Conversely, in the present case, there has
been withdrawal and appropriation of monies by few creditors which
would prejudicially affect the rights of other creditors and also
negatively impact the value of the assets of the Corporate Debtor
thereby thwarting the very purpose of the Code i.e. maximization of
value of the assets of Corporate Debtor.

77.16 Another case relied upon by the Respondents is Mr. Punit Garg vs.
Ericsson India Pvt. Ltd. [Company Appeal (AT) (Ins) No. 255-
256/2018. The relevant extracts are reproduced below:
“Taking into consideration the stand taken by the parties
and the fact that if the ‘Corporate Insolvency Resolution
Process’ is allowed to continue, all the ‘Financial Creditors’

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as also the ‘Operational Creditors’ may suffer more loss

and the Appellants have made out a prima facie case, as
agreed and suggested by learned Senior Counsel for the
Appellants and learned Senior Counsel for the ‘Joint
Lenders Forum’ and the learned Senior Counsel for the
‘Operational Creditor’- ‘Ericsson India Pvt. Ltd.’, we pass
the following orders:
i. Until further orders, the impugned orders dated 15th
May, 2018 and 18th May, 2018, passed by the
Adjudicating Authority, Mumbai Bench in C.P. (IB) 1385,
1386 & 1387 (MB)/2017, shall remain stayed. The
‘Resolution Professional’ will allow the managements of
the ‘Corporate Debtors’ to function. He may attend the
office of the ‘Corporate Debtors’ till further order is
passed by this Appellate Tribunal. Thereby, the
‘Corporate Insolvency Resolution Process’ initiated
against the ‘Corporate Debtors’ namely— ‘Reliance
Infratel Ltd.’; ‘Reliance Telecom Ltd.’ And ‘Reliance
Communications Ltd.’ Shall remain stayed, until further
orders.
ii. The ‘Financial Creditors’/’Joint Lenders Forum’ with
whom the assets of the ‘Corporate Debtors’ have been
mortgaged as also the ‘Corporate Debtors’ are given
liberty to sell the Debtors’ and to deposit the total
amount in the ‘Joint Lenders Forum’ subject to the
decision of these appeals. It was made clear that if the
appeals are rejected, the ‘Financial Creditors’/ ‘Joint
Lenders Forum’ and other Banks with whom the
amount is deposited, will have to return the total amount
in the respective accounts of the ‘Corporate Debtors’.
iii. The Chairman, Managing Directors, Directors and other
members of the ‘Corporate Debtors’ namely— ‘Reliance
Infratel Ltd.’; ‘Reliance Telecom Ltd.’ and ‘Reliance

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Communications Ltd.’ are directed to pay a sum of Rs.

550 Crores (Rupees Five Hundred Fifty Crores Only)
(jointly) in favour of ‘Ericsson India Pvt. Ltd.’ within 120
days i.e. by 30th September, 2018. In case of non-
payment of the amount and part of the same, the
concerned appeal(s) may be dismissed and this
Appellate Tribunal may direct to complete the ‘Corporate
Insolvency Resolution Process’ and may pass
appropriate order. The payment of Rs. 550 Crores
(Rupees Five Hundred Fifty Crores Only) in favour of the
‘Operational Creditor’ shall be subject to the decision of
these appeals. If the appeals are dismissed, the
‘Operational Creditor’ will pay back the amount to the
‘Corporate Debtors’.”

77.17 In Punit Garg (supra), the Appellate Tribunal had stayed the CIRP
and also allowed the settlement between the Corporate Debtor and
creditors with a clear direction that the deposit of amounts in favour
of the creditors shall be subject to the outcome of the appeals and
in case the appeal is dismissed, the parties were directed to remit
back the amount to the Corporate Debtor. On a perusal of the said
order, we find that the observations therein do not support the case
of the Respondents, rather it strengthens the case of the Applicant.

77.18 The Bankruptcy Law Reforms Committee (BLRC) in its report

(November 2015) recommended for a calm period during which time
negotiation can take place to access the viability of the debt. In this
regard, it further stated that “this calm period is implemented in two
orders passed by the Adjudicator. One is an order passing a
moratorium on all recovery actions or filing of new claims against the
enterprise. The other is by putting in place an insolvency professional
who has the powers to take over the management and operations of
the enterprise.

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77.19 It is also germane to note the following observations in the BLRC

Report (November 2015):
“3.4.2 Principles driving the design
***
IV. The Code will ensure a collective process.
9. The law must ensure that all key stakeholders will participate
to collectively assess viability.
The law must ensure that all creditors who have the capability
and the willingness to restructure their liabilities must be part of
the negotiation process. The liabilities of all creditors who are not
part of the negotiation process must also be met in any
negotiated solution.

V. The Code will respect the rights of all creditors equally.

10. The law must be impartial to the type of creditor in counting
their weight in the vote on the final solution in resolving
insolvency.

3.5 … Value destruction in corporate distress when a firm

has secured credit, and fails on its obligations, the present
framework (SARFAESI) emphasises secured creditors taking
control of the assets which were pledged to them. This tends to
disrupt the working of the company. The present frameworks do
not allow for the possibility of protecting the firm as a going
concern while protecting the cash flows of secured creditors.

5. Process for legal entities

***
5.3.1 1. Moratorium on debt recovery action
The motivation behind the moratorium is that it is value
maximising for the entity to continue operations even as viability
is being assessed during the CIRP. There should be no
additional stress on the business after the public announcement

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of the IRP. The order for the moratorium during the IRP imposes
a stay not just on debt recovery actions, but also any claims or
expected claims from old lawsuits, or on new lawsuits, for any
manner of recovery from the entity.

77.20 The above elucidation of BLRC articulates that imposition of

moratorium and appointment of IRP are entangled for effective and
efficient resolution of the Corporate Debtor. Moreover, it can also be
understood that the Code envisages a more creditor-driven
resolution of a company with overall benefit to every stakeholder of
the Corporate Debtor. When the law is settled that an interim stay
cannot be equivalent to quashing of the CIRP order, it becomes
certainly clear that any action taken in the meantime in deviation of
the salient features of the Code would defeat the very purpose
behind its enactment.

77.21 Further, on analysing the above-cited judgments in their true spirit,

more particularly Mukesh Jain Kumar (supra), Ashok Tyagi
(supra) and Punit Garg (supra), it is clear that the understanding
of the Appellate Tribunal was never that an order granting stay on
the CIRP of a company would also mean staying the appointment of
the RP and the moratorium imposed thereunder as the same would
be averse to the intent and spirit of I&B Code.

77.22 Thus, based on the above discussions, we are satisfied that Hon’ble
Appellate Tribunal, even in the absence of any specific
directions/observations while granting the interim stay on
07.03.2023, did not intend to suspend the moratorium imposed
under section 14 or the appointment of RP but merely impelled to
stay the operation of the CIRP order dated 23.02.2023. This means
that the RP was only prevented from taking further steps in respect
of the CIRP process of the Corporate Debtor which does not imply
that the Corporate Debtor has to be handed over back to the

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management, and the management of the Corporate Debtor and few

of its creditors could have acted against the objectives of the Code.

78. Issue III: On RP’s conduct of handing over the management of

Corporate Debtor back to the suspended directors

78.1 The RP has relied on BPL Limited vs. R. Sudhakar [(2004) 7 SCC
2019] and contended that RP’s appointment is an outcome of the
admission order and when the order itself is stayed, the RP could
not carry out his functions under the I&B Code. However, we note
that the Appellate Tribunal had already distinguished the BPL
Limited (supra) judgment in the following terms:
“17. The ratio of the Judgment of this Tribunal in “B.P.L Ltd
& Ors” (supra) is the same as was laid down in the Judgment
of Hon’ble Supreme Court in “Shree Chamundi Mopeds Ltd.”
(supra) which has been followed by the Hon’ble Supreme
Court. The above judgment in no manner helps the Appellant
in the present case since present is a case where order of
Admission of CIRP under section 7 has been stayed by this
Tribunal. Proceeding under section 7 were initiated before the
Adjudicating Authority in which final order was passed.
Factual Matrix of the present case is clearly different from
those which was considered in “B.P.L Ltd & Ors” (supra).”

78.2 Further, in Ashok Kumar Tyagi (supra), the Appellate Tribunal had
directed the CEO to make the requisite payments towards the
necessary dues only based on the facts of that case. Moreover, it is
relevant to note here that a direction was also given to submit all
the details regarding the payments so made to the IRP which means
that the appointment of IRP is not fully wiped out due to the interim
stay.

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78.3 In Punit Garg (supra), as referred by the RP, the Appellate Tribunal
had directed the RP to allow the management of the Corporate
Debtor to run. However, such a direction was given by the Appellate
Tribunal considering the facts and circumstances of that case.
Moreover, a further direction that the RP shall also attend the office
of the Corporate Debtor makes it patently clear that stay of a CIRP
admission order does not automatically allow a management to take
over the control of the Corporate Debtor and similarly, it also does
not take away the powers and duties of the RP in the management
of the Corporate Debtor.

78.4 Also, in Mukesh Kumar Jain (supra), the Appellate Tribunal had
observed as follows:
“15. … it is for the Resolution Professional to take
decision in its wisdom as to how the Corporate Debtor
should be allowed to continue as a going concern
without taking any steps in the CIRP, in view of the
interim order passed by the Hon’ble Supreme Court
dated 25.02.2022.”

78.5 The I&B Code, as compared to the previous insolvency laws in India,
has a distinct feature i.e. the Code mandates a transfer of control of
the Corporate Debtor in the hands of the creditors from the
management once an insolvency process is initiated. This creditor-
controlled approach is mainly implemented to take the control of
the Corporate Debtor out of the clutches of the erstwhile
management. By handing over the Corporate Debtor back to the
management at a time when the CIRP of the Corporate Debtor is
merely stayed, the I&B Code will lose its sheen.

78.6 Thus, in view of the same and also the clear precedence set out in
Ashok Kumar Tyagi (supra) which was passed prior to the stay
granted in the present matter, the RP ought not to have handed over

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the management and control of the Corporate Debtor back to the

suspended directors without appropriate instructions/directions
from this Tribunal.

79. Issue IV: On withdrawal and appropriation of monies by

Respondents 2 to 6

79.1 All the transactions during the period from 07.03.2023 to

10.08.2023 are subject to the final outcome of the appeal. All
parties including the Financial Creditors which withdrew the
monies from the account of the corporate debtor were put to notice
that insolvency commencement date is 23.02.2023. Mere stay of the
order does not amount to wiping off the admission order completely
as held by Hon’ble Supreme Court in Shree Chamundi Mopeds
(supra).

79.2 Being fully aware of the pending proceedings before the Appellate
Tribunal, the Financial Creditors took a calculated risk of
appropriating the funds of corporate debtor knowing that their
actions would be subject to the final outcome of the appeal.

79.3 The object of the IBC is to protect the assets of the corporate debtor
from all creditors as well as its own management once CIRP is
initiated. It is well-settled principle that during insolvency
resolution/liquidation of a company, no creditor shall be paid in
priority otherwise than as prescribed under the I&B Code.

79.4 In view of the various judgments of Hon’ble Supreme Court and

Appellate Tribunal discussed above, the scheme and intent of IBC
and the effect of Stay order is clearly laid down and we have no
hesitation in holding all transactions undertaken during the period
07.03.2023 to 10.08.2023 were subject to the final outcome of the

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appeal. As the appeal stood dismissed, the moratorium stands

applicable from the date of ICD i.e. 23.02.2023.

79.5 Since we had held that moratorium is applicable from 23.02.2023,

all transaction during the period from 23.02.2023 to 10.08.2023 are
subject to the moratorium under section 14 of IBC. The expenses
incurred in the ordinary course of business to protect the Corporate
Debtor and to keep it as a going concern would be safeguarded. All
other transactions and appropriations would consequently be
returned to the corporate debtor for the benefit of all the creditors
in accordance with the provisions and intent of the IBC.

79.6 In view of our decision that moratorium is applicable from the ICD
i.e. 23.02.2023, all consequential actions will follow including on
withdrawal and appropriation of monies by the Respondents, and
there is no need to deal with other contentions of the Respondents
in this regard.

80. We note that ARCIL, in its IA/126/2024, in prayer ‘c’, sought for direction
to maintain the Corporate Debtor’s account in a bank other than
Respondents 2 to 6, and in prayer ‘g’, ARCIL prayed for direction to
Respondents 2 to 6 for payment of interest on the amount appropriated
by them during the stay period.

81. In respect of prayer ‘c’, we are of considered view that since the appeal
challenging the CIRP admission order dated 23.02.2023 has been
dismissed on 10.08.2023, the control of the management and affairs of
the Corporate Debtor is back in the hands of the RP who will be in-charge
of the account of the Corporate Debtor too and therefore, such a direction
is unwarranted.

82. As regards prayer ‘g’, it is seen that since there was no direct transaction
from the Corporate Debtor to the financial creditors as also to the extent

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of amount appropriated, the Corporate Debtor’s liability of interest would

be reduced. Accordingly, a direction to pay interest on the appropriated
amount would not be justified and hence not granted.

Conclusion
83. The findings recorded above are summarized as follows:
a) Insolvency Commencement Date as defined under section 5(13) of the
Code stands fixed at 22.02.2023.

b) Since the ICD date cannot be changed, we are unable to agree that
even after the dismissal of the appeal, the ICD should be reckoned as
10.08.2023 for CIRP activities. Hence, the application no. 4844/2023
is rejected. We hold the ICD remains 23.02.2023 and all CIRP related
activities have to be reckoned from that date only.

c) Moratorium under section 14 continues to be applicable from

22.02.2023.

d) All the transactions and appropriations undertaken during the stay

period i.e. between 07.03.2023 till 10.08.2023 shall be reversed and
the amounts shall be remitted back to the account of the Corporate
Debtor within 4 weeks from today.

e) The expenses incurred in the ordinary course of business to protect

the Corporate Debtor and to keep it as a going concern would be
safeguarded.

84. With these observations, we pass the following order on the prayers sought
in the three captioned applications:
IA/4844/2023
i. Prayer ‘c’ seeking 10.08.2023 as the cut-off date for CIRP-related
activities is rejected.

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ii. As regards prayer ‘b’ seeking clarification on liabilities incurred

during the stay period, we note that the relief sought herein is
incidental to prayer ‘c’ which has been rejected. Accordingly, prayer
‘b’ has become inconsequential. Thus, IA/4844/2023 is dismissed.

Intervention Petition 57/2023

iii. Intervention Petition No. 57/2023 is allowed.

IA/126/2024
iv. Prayers ‘a’, ‘b’, ‘d’, ‘e’ and ‘f’ being interconnected to each other are
allowed;

v. Prayer ‘c’ seeking direction to the RP to maintain the account of the

Corporate Debtor in a bank other than Respondents 2 to 6 is
rejected;

vi. Prayer ‘g’ seeking direction to Respondents 2 to 6 to pay interest on

the amounts withdrawn is rejected;

vii. Thus, IA/126/2024 is partly allowed.

85. Accordingly, all IAs are disposed of in above terms.

Sd/- Sd/-
Charanjeet Singh Gulati Lakshmi Gurung
Member (Technical) Member (Judicial)
Uma, LRA

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