2019 (12) TMI 167 - AT - IBC

NCLAT Confirms Financial Creditor's Right to File u/s 7 of I&B Code, Even Post-Liquidation Order.

The NCLAT upheld the maintainability of an application under Section 7 of the I&B Code, despite a prior liquidation order by the High Court. The appeal ... Maintainability of application - initiation of CIRP - absence of bar under Section 11 of the ‘I&B Code’ - Corporate Debtor failed to make repayment - existence of debt and dispute or not - Section 7 of the ‘I&B Code’ - HELD THAT:- Similar issue fell for consideration before the Hon’ble Supreme Court in Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd. [2019 (1) TMI 1442 - SUPREME COURT]. In the said case, the Hon’ble Supreme Court noticed that the winding up petition was filed against the ‘Corporate Debtor’ (Company) against which application under Section 7 of the ‘I&B Code’ was filed subsequently and observed that This Section is of limited application and only bars a corporate debtor from initiating a petition under Section 10 of the Code in respect of whom a liquidation order has been made. From a reading of this Section, it does not follow that until a liquidation order has been made against the corporate debtor, an Insolvency Petition may be filed under Section 7 or Section 9 as the case may be, as has been held by the Appellate Tribunal. The Hon’ble Supreme Court further held that under Section 11 only the ‘Corporate Debtor’ is not eligible to file petition under Chapter II of the ‘I&B Code’. The application under Section 7 was maintainable and therefore, no interference is called for - Appeal dismissed. Issues:1. Maintainability of application under Section 7 of the Insolvency and Bankruptcy Code, 2016 despite the order of liquidation passed by the High Court.2. Interpretation of Section 11 of the Insolvency and Bankruptcy Code regarding the eligibility of a corporate debtor to file a petition under Chapter II.Issue 1: Maintainability of application under Section 7:The Punjab National Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code against M/s. Hanung Toys and Textiles Limited. The National Company Law Tribunal admitted the application despite the order of liquidation passed by the High Court. The appellant argued that since the order of liquidation had been passed and the Official Liquidator appointed, the application under Section 7 was not maintainable. However, the bank contended that the application was maintainable even after the order of liquidation, citing no bar under Section 11 of the I&B Code.The Official Liquidator had taken possession of the properties of the Corporate Debtor after the winding-up petition. The possession of the factory and corporate office was transferred to the Official Liquidator on specific dates. The Corporate Debtor had availed loans from the Punjab National Bank but failed to fulfill its commitments, leading to the revocation of the Corporate Debt Restructuring Scheme. Several banks issued notices under the SARFAESI Act demanding arrears, and symbolic possession of properties was taken by the Punjab National Bank.Issue 2: Interpretation of Section 11 of the I&B Code:The Hon'ble Supreme Court's judgment in 'Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd.' was referred to, where it was discussed that a winding-up petition filed against a Corporate Debtor does not bar the filing of an application under Section 7 of the I&B Code subsequently. The Supreme Court clarified that Section 11 of the Code only prohibits a Corporate Debtor from initiating proceedings under Chapter II if a liquidation order has been made against it. The Court emphasized that until a liquidation order is issued, an Insolvency Petition may be filed under Section 7 or Section 9. The Court declined to interfere with the Appellate Tribunal's decision, confirming the independence of the financial creditor's application under Section 7, as per the provisions of the Code.In conclusion, the National Company Law Appellate Tribunal held that the application under Section 7 was maintainable despite the order of liquidation passed by the High Court. The appeal was dismissed based on the Supreme Court's interpretation of Section 11, confirming the independence and validity of the financial creditor's application under the I&B Code.