National Company Law Tribunal, Mumbai vide its order dated 3rd July, 2017, clarified that the application of moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 ("Code") does not extend to the properties which are beyond the ownership of the corporate debtor. In the present case, Schweitzer Systemtek India Private Limited ("Corporate Debtor") filed an application before the Hon'ble Tribunal at Mumbai bench under section 10 of the Code for initiating Corporate Insolvency Resolution Process ("CIRP") against itself so that under the provisions of section 14 of the Code, the process of "Moratorium" may commence. The Corporate Debtor took a loan of an amount of Rs. 4.5 crore approximately from Dhanlaxmi Bank. Dhanlaxmi Bank later on assigned and transferred the outstanding debt to M/s Phoenix ARC Limited ("Creditor") by way of an assignment agreement executed between Dhanlaxmi Bank and the Creditor. The personal properties of the promoter of the Corporate Debtor (i.e. 3 residential flats) were mortgaged in the name of Dhanlaxmi Bank as a security for the aforesaid debt and pursuant to the aforesaid assignment, on modification of the charges, the said properties stood mortgaged with the Creditor. The said application was contested and opposed by the Creditor. The Hon'ble Tribunal upon hearing both the sides, allowed the admission of the application on various reasons and thus commencing the provisions of moratorium. However, while allowing the application, the Hon'ble Tribunal held that the personal properties not owned by the Corporate Debtor which are mortgaged as security will not fall under the ambit of moratorium as section 14 of the Code states that, on the insolvency commencement date, moratorium shall be declared for prohibiting any action to recover or enforce any security interest created by the Corporate Debtor in respect of its property. The Hon'ble Tribunal further went to explain that the word "its" in the section 14 of the Code means the property owned by a corporate debtor and does not extend to the properties beyond the ownership of a corporate debtor.

This update is authored by Clasis Law, Clyde & Co's associated firm in India

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