Whether proceedings for declaration of wilful defaulter can continue pending moratorium under the IBC Law-Calcutta high court land mark ruling

The Calcutta high court in the case of Sandip Kumar Bajaj & Ors Vs SBI in WP No 236 of 2020 on 15/9/2020 was considering challenge to a SCN issued by State Bank of India for declaring the petitioner herein as a Wilful defaulter which was challenged interalia on the ground that the same could not have been continued in view of moratorium granted under the IBC Law. The court noted that the scheme framed by the RBI was to identify events of wilful default by borrowers where the particular unit has defaulted in its payment obligations to the lender despite having a capacity to pay or has diverted the borrowed funds for some other purpose other than the specific purpose for which the funds were made available. The scheme evolved a mechanism of identifying such defaults by various methods of monitoring and prevention. Section 14(3)(b) of Insolvency code provides that the prohibition on institution or continuation of suits and other proceedings against the corporate debtor do not extend to a surety and relating on the decision of the Apex Court in the case of State Bank of India Vs Jen Developers Pvt ltd (2019) 6 SCC 787(SC) where the apex court held that the proceedings under the Master Circular, being essentially in the nature of in-house proceedings and of an administrative character, cannot permit legal representation, dismissed the writ petition.

Ramesh Patodia