The hon’ble High Court of Gujarat (Gujarat High Court) in its judgment in the matter of Jagdish Prasad Saboo v. IDBI Bank Limited, held that proceedings initiated under chapter III, Part III of the IBC will have no bearing on the proceedings initiated against the debtor under the master circular issued by the RBI to declare the account as willful defaulter (RBI Master Circular).
While refuting the applicability of the judgment passed by the Supreme Court in P.Mohanraj and others vs. Shah Brothers Ispat Private Limited[1] and State Bank of India vs. M/s. Jah Developers Private Limited and others[2], the Gujarat High Court opined that section 96 of the IBC would indicate that the interim moratorium which commences on the date of the application is ‘debt -centric’. Hence, the same will apply in relation to all the debts and the legal action or proceedings pending which are in respect of recovery of the debt.
Regarding the applicability of the RBI Master Circular, the Gujarat High Court noted that the object of the same is to disseminate credit information of the willful defaulter so that other lenders are cautioned and do not lend any further money. Hence, the willful defaulter proceedings have no connection with the recovery of debt or the repayment of debt or restructuring of the same. In view thereof, the Gujarat High Court concluded that recovery proceedings or the proceedings under section 96 of the IBC or the insolvency proceedings, would have no bearing on the willful default proceedings, which only aim at dissemination of information of the default already committed.
The said judgment by the Gujarat High Court is a much-welcome decision, as it creates an embargo upon the limitless application of the interim moratorium under section 96 of the IBC. By way of this judgment, the Gujarat High Court has made it crystal clear that a blanket protection under the garb of interim moratorium shall not be available to anyone who intended to initiate proceedings under the IBC so as to curb from any other proceedings.
[1] (2021) 6 SCC 258
[2] (2019) 6 SCC 787