Operational Creditor in CIRP Cannot File Section 9 Petition Against Corporate Debtor

The National Company Law Tribunal, Hyderabad, held that an operational creditor undergoing Corporate Insolvency Resolution Process (CIRP) cannot maintain a petition under Section 9 of the Insolvency & Bankruptcy Code against a corporate debtor due to the prohibition in Section 11. Despite evidence of debt and non-contestation by the debtor, the Tribunal emphasized that the restriction in Section 11 applies to any capacity in which the petitioner, undergoing CIRP, seeks to initiate CIRP against another entity. The Resolution Professional representing the petitioner was also found unable to maintain the petition under Section 9. The petition was rejected based on statutory restrictions and legal precedents.

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Issues:
1. Maintainability of the petition under Section 9 of the Insolvency & Bankruptcy Code, 2016 by an operational creditor undergoing Corporate Insolvency Resolution Process (CIRP).

Analysis:
The case involved an Operational Creditor petitioning against a Corporate Debtor for defaulting on a significant amount. The Operational Creditor sought initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 9 of the Insolvency & Bankruptcy Code, 2016. The Operational Creditor provided evidence of the debt, including invoices and acknowledgment by the Corporate Debtor. Despite the absence of the Corporate Debtor in contesting the petition, a critical issue arose regarding the maintainability of the petition under Section 9 due to the Operational Creditor undergoing CIRP in another case.

The Tribunal deliberated on the application's maintainability under Section 9 in light of the prohibition outlined in Section 11 of the I&B Code. Section 11 restricts certain entities, including a corporate debtor undergoing CIRP, from initiating the CIRP process. The Operational Creditor contended that as an operational creditor, it could still initiate CIRP against the Corporate Debtor, even while undergoing CIRP itself. However, the Tribunal disagreed, emphasizing that the bar under Section 11 applies to any capacity in which the petitioner, undergoing CIRP, seeks to initiate CIRP against another entity. The Resolution Professional representing the petitioner was also deemed unable to maintain the petition under Section 9 due to the statutory restriction.

Additionally, the Tribunal referenced legal precedents to support its decision, citing cases where entities undergoing insolvency resolution were barred from initiating insolvency processes. Notably, the Tribunal highlighted that the Resolution Professional's powers under Section 25 of the I&B Code were subject to the limitations imposed by Section 11. Ultimately, considering the statutory restrictions and judicial interpretations, the Tribunal rejected the petition, concluding that the Operational Creditor, undergoing CIRP, could not maintain the petition under Section 9 due to the prohibition in Section 11 of the I&B Code.

This detailed analysis of the judgment from the National Company Law Tribunal, Hyderabad, provides a comprehensive overview of the issues surrounding the maintainability of the petition under Section 9 of the Insolvency & Bankruptcy Code, 2016, by an operational creditor undergoing Corporate Insolvency Resolution Process.

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