India: Insolvency & Bankruptcy Code, 2016 - Moratorium Inapplicable To Third Party Assets

Last Updated: 10 May 2019
Article by AMLEGALS  

M/s. Sun pharmaceutical industries limited
in the matter of weather makers private limited v. parabolic drugs limited
CA NO.206 of 2019 IN C.P (IB) – 102/CHD/2018


The present application was moved by M/s. Sun Pharmaceutical Industries Limited (hereinafter referred to as the "Applicant"), formerly known as Ranbaxy Laboratories,before the National Company Law Tribunal Chandigarh Bench (hereinafter referred to as the "NCLT") in the case of Parabolic Drugs (hereinafter referred to as the "Corporate Debtor"), which was undergoing Corporate Insolvency Resolution Process (hereinafter referred to as the "CIRP"), seeking to lift the raw material belonging to the Applicant.

Since the Corporate Debtor was undergoing CIRP, moratorium was declared in the light of Section 14 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code").

The Applicant had entered into a Manufacturing & Supply Agreement (hereinafter referred to as the "Contract") wherein the Corporate Debtor had agreed to manufacture a drug for the Applicant, the raw material for which was to be given by the Applicant.

While the Applicant relied on a number of clauses of the Contract, the NCLT put emphasis on clause 3.18 of the Contract, reproduced hereinunder:

"3.18 The property and ownership in the raw materials, packaging or other materials and the finished Products or stock in-process of manufacture shall at all times remains and shall be deemed to be vested in RANBAXY"

The Applicant was aggrieved by the fact that after the CIRP process was started for the Corporate Debtor, neither the drug to be manufactured was made available to them nor the raw material was returned by the RP.

To add to this, there was an apprehension that the raw material (a sensitive chemical) stored with the Corporate Debtor would perish since the electricity connection of the premises was also disconnected.


The issue before the NCLT was:

Whether third party goods in the possession of the Corporate Debtor should be returned to the owner upon the commencement of the Moratorium or not?


The observation of the NCLT was rather very straightforward having direct reference to the Code and following a very strict interpretation of the provisions therein.

The NCLT noted that while the Learned Resolution Professional on behalf of the Corporate Debtor relied upon Clause (d) of Sub-Section (1) of Section 14, the facts and circumstances of the case held provisions of Section 18 to be more appropriate while dealing with the question of law before it.

While examining the provisions of Section 14 (1) (d) of the Code the NCLT pointed out that the recovery of any "property", as opposed to the term "asset" used under Section 18 of the Code, was prohibited after moratorium was declared by the virtue of the commencement of the CIRP, by an owner or a lessor given that such a property was in the possession of a Corporate Debtor.

The definition of the term "property" is found under Sub-Section (27) of Section 3 of the Code which included money, goods, land and actionable claims amongst other elements within its scope.

The NCLT noted that the Committee of Creditors of the Corporate Debtor had resolved unanimously by way of a vote to not release the goods to the Applicant which gave rise to the reasoning that such a resolution was to bar the Applicant from the "recovery" of its goods while in a strict sense, the claim of the Applicant was not for recovery of money or goods at the first place. 

"From the side of the Applicant, a legal argument was raised that the admitted position of supply of goods was not denied by the Resolution Professional. Further, it is pleaded that provisions of Section 14 do not apply in this situation because the material supplied do not fall under the category of essential goods or services. The Ld. Counsel has informed that "Essential Supplies" are defined under Regulation 32 of IBBI (Insolvency Resolution Process and Corporate Persons) Regulation 2016 which includes and shall mean electricity, water, telecommunication services and information technology services.


The primary reasoning of the NCLT for relying upon the provisions of Section 18 of the Code and the explanation provided therein was answered by way of a fine distinction between the areas of operation of Section 14 Code vis-à-vis Section 18 of the Code.

The NCLT noted that Section 14 is with regards to the property which is occupied or in possession of the Corporate Debtor and when read with Section 3(27) of the Code, it did include money, goods, land etc. Thus, if the property as defined under Section 3 is with the Corporate debtor then the same cannot be recovered from the Corporate Debtor.

This was taken to be the general rule of operation.

The distinction was thus brought out by the Explanation as provided for under Section 18 wherein "asset" as provided for therein did not include the assets owned by a third party in possession of Corporate Debtor, either

  1. Under trust or;
  2. Under a contractual arrangement including bailment.

Thus, the exception to the general rule is only when the "asset" is either a trust asset or an asset in possession owing to contractual arrangement.

Hence it was concluded that an exception could easily be drawn to the general rule under Section 14 by the Explanation under Section 18 but it was limited in its operation.

The factual matrix had already established, and nor it was ever disputed, that the raw materials were provided to the Corporate Debtor under a contractual arrangement.


In the present case, the NCLT points out that while Section 14 in the general rule, the Explanation to Section 18 is the exception to this rule.

While making this conclusion, it is important to note that the scope of operation of this exception is limited by the Code itself as provided for under the Explanation to Section 18.

An asset owned by a third party but in possession of the Corporate Debtor shall not stand to be included under Clause (f) of Sub-Section (1) of Section 18 of the Code.

What is important to note further which the NCLT could have emphasized on is that in order to seek relief in the light of the Explanation for Section 18, the party seeking such relief should prima facie be a third party in addition to the other conditions stated therein.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions