Power Grid Company of India Limited vs. Jyoti Structures Limited [O.M.P (COMM) 397/2016] - Synopsis
Team SoOLEGAL 2 Nov 2020

The ruling of the Delhi High Court in the case of Power Grid Company of India Limited vs. Jyoti Structures Limited is significant because it is one of the very few decisions dealing with the moratorium reading section 14 of the Insolvency and Bankruptcy Code, 2016 (Code). In trying to ascertain the real and proper sense of the clause and its effect on the pending legal proceedings relating to the corporate debtor, the Court went beyond the seemingly simple legal proceedings to achieve an essential result. The foregoing is a series of incidents relating to the present scenario. Under Section 34 of the Arbitration and Conciliation Act, 1996 (Act), Power Grid requested the Delhi High Court to set aside an arbitral award passed in support of Jyoti Systems. Interestingly, in the form of a pure money decree, the award is granted in favour of Jyoti Systems. However, the National Company Law Tribunal-Mumbai, (NCLT) approved an application filed by a financial creditor against Jyoti Systems under Section 7 of the Code requesting commencement of the corporate insolvency resolution process during the pendency of these proceedings. In view of the above, Power Grid argued that according to section 14(1)(a) of the Code the present proceedings under Section 34 of the Arbitration and Conciliation Act must stay. The corporate debtor is taken through the insolvency resolution process if the NCLT accepts an application under the Code and the moratorium in section 14 is activated. During such a time, no legal proceedings can take place against the corporate debtor for the restitution, enforcement of security rights, disposal or disposition of properties, or termination of critical contracts. It would be useful to reprint the related portion of Section 14 below: According to the provisions of Subsections (2) and (3), on the date of commencement of insolvency, the Adjudicating Authority shall declare, by decree, a moratorium on the prohibition of any of the following:-
an establishment of lawsuits or the continuity of pending lawsuits or proceedings against the corporate debtor, including the execution of any lawsuit or proceedings against the corporate debtor;
If the pending appeal litigation should stay until the ban is lifted is the key issue around which the debate has focused. The task of building the term 'proceedings' used in section 14(1)(a) of the Code was then delegated to the Court. The Court clarified that the essence of prosecution must be known before it stays pursuant to a suspension under the Code.

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