2017 (11) TMI 1621 - AT - Insolvency and Bankruptcy

Financial Creditor Prevails Over Operational Creditor in Insolvency Application

The Adjudicating Authority admitted the application filed by a Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 against a ... Corporate Insolvency Resolution Process - pendency of some applications for winding up - Held that:- In the present case, admittedly no order for winding up has been passed against the ‘Corporate Debtor’ by Hon’ble High Court. No liquidation proceeding has been initiated. It appears that some of the applications for ‘winding up’ under the Companies Act, 1956 are pending, but no order for ‘winding up’ has been passed. In the circumstances, in the absence of actual initiation of ‘winding up’ proceedings against the Corporate Debtor, it is always open to the Financial Creditor/Operational Creditor to file an application for Corporate Insolvency Resolution Process against the Corporate Debtor. For the reasons aforesaid, the objection raised by the appellant that petition under Section 7 is not maintainable against the Corporate Debtor because of pendency of some applications for winding up cannot be accepted. Issues:1. Eligibility of a Financial Creditor to file an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 in the presence of winding up applications.2. Interpretation of the term 'winding up' under the Companies Act, 2013 and its relation to liquidation under the Insolvency and Bankruptcy Code, 2016.Analysis:1. The case involved an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by a Financial Creditor against a Corporate Debtor. An objection was raised by a third party, claiming to be an Operational Creditor, citing the pendency of winding up cases against the Corporate Debtor. The Adjudicating Authority admitted the application, imposed a moratorium, and appointed an Interim Resolution Professional, rejecting the objection raised by the third party. The objection was based on the ineligibility of the Financial Creditor to make the application due to the presence of winding up applications. However, the ineligibility criteria specified in Section 11 of the I & B Code did not bar the Financial Creditor from filing the application unless the terms of a resolution plan had been violated within twelve months preceding the application.2. The interpretation of the term 'winding up' under the Companies Act, 2013 was crucial in determining its relationship with liquidation under the Insolvency and Bankruptcy Code, 2016. While the term 'winding up' was not explicitly mentioned in Chapter III of Part II of the I & B Code, Section 255 read with Schedule 11 clarified that 'winding up' under the Companies Act, 2013 equated to 'liquidation' under the I & B Code. The absence of a specific provision barring the filing of applications under Section 7 or 9 in the presence of winding up or liquidation proceedings indicated that such proceedings did not automatically render the application unviable. However, if a Corporate Insolvency Resolution or liquidation proceedings had already commenced against the Corporate Debtor, subsequent applications under Section 7 or 9 might not be entertained.In conclusion, the judgment dismissed the appeal, emphasizing that the absence of an order for winding up against the Corporate Debtor allowed the Financial Creditor to proceed with the application under Section 7. The decision highlighted the distinction between 'winding up' under the Companies Act, 2013 and 'liquidation' under the Insolvency and Bankruptcy Code, 2016, underscoring the eligibility of the Financial Creditor to file the application despite the pendency of winding up applications.