Article explains following 4 FAQs based on recent NCLT Rulings- 1. Whether Pendency of Proceedings or initiation of action under SARFAESI Act is a ground for rejection of application u/s 7 of IBC? 2. Whether non-cooperation of suspended management and non –availability of assets in Company can be an ground for initiation of Liquidation process? 3. Whether pendency of proceedings before DRT can be bar to initiate CRP? 4. In case where winding up proceedings are pending with High Court, then whether a Creditor not being part of such petition can approach to Tribunal  under IBC?

Case A: Whether Pendency of Proceedings or initiation of action under SARFAESI Act is a ground for rejection of application u/s 7 of IBC?

NCLT Bench New Delhi Bench
Corporate Debtor Basic India Limited
Operational Creditor Bank of India
Dated 12th October, 2018

FACTS:

The corporate debtor approached the applicant (Bank of India) for sanction of various credit facilities to the corporate debtor. Consequently, applicant bank sanctioned financial facilities to the corporate debtor, which had been renewed / enhanced from time to time. The corporate debtor acknowledged sanction of the facilities and the same was continued to be enjoyed by the corporate debtor against hypothecation and mortgage of properties and creation of charge on the entire fixed and current assets of the company.

As the corporate debtor failed to pay the debt, the petitioner bank issued a demand notice under section 13(2) of SARFAESI Act, 2002.

The corporate debtor raised objections challenging maintainability of the instant application filed under section 7 of the Code that action had already been initiated by applicant under the provision of SARFAESI Act; hence, instant application was not maintainable.

RULING:

It is well settled that pendency of proceedings and initiation of action under SARFAESI Act cannot be an impediment or bar to initiate the Corporate Insolvency Resolution Process under Section 7 of the Code.

Therefore, one can opine that pendency or initiation of action under SARFAESI ACT is not an ground for rejection of application under IBC.

CASE B: Whether non-cooperation of suspended management and non –availability of assets in Company can be an ground for initiation of Liquidation process?

Bench NCLT, Ahmedabad Bench
Corporate Debtor J.R. Diamonds (P.) Ltd.
Operational Creditor Vinod Tarachand Agarwal
Dated 1st October, 2018
 

FACTS:

The Counsel for the applicant submitted that there remained no possibility to bring a revival plan for the Corporate Debtor Company, because RP did not receive adequate cooperation/necessary assistance from the member of suspended management/board because of their non-availability. Moreover, the company at present does not possess immovable/tangible assets and there are some assets only in form of stock, shares, etc. and it is expecting some refund of income tax paid from the Income Tax Department.

Therefore, as per the applicant there is no scope for waiting further for a viable Resolution Plan or to explore for potential Resolution applicants despite sincere efforts were already made by the RP and the Committee of Creditors by inviting expression of interest dated 21.06.2018 in Form G, but no one came forward for submitting such Resolution Plan.

RULING:

Having heard arguments of the Ld. Counsel for the applicant and by going through the material available on record in respect of the present IA, this Adjudicating Authority is of a considered view that a liquidation order may be passed in respect of Corporate Debtor J.R. Diamonds Pvt. Ltd. Since there is 100% voting of the members of the CoC favouring liquidation process, the present IA No. 309 of 2018 deserves to be allowed.

CASE C: Whether pendency of proceedings before DRT can be bar to initiate CRP?

Bench NCLT, New Delhi Bench
Corporate Debtor Pixion Media (P.) Ltd.
Operational Creditor Indian Overseas Bank
Dated 9th October, 2018

FACTS:

The respondent corporate debtor approached the applicant bank for sanction of term loan. By that time the corporate debtor was already availing credit facilities from a number of financial institutions. The applicant financial creditor after perusing the documents and information as submitted by the corporate debtor, sanctioned a term loan, which was subsequently brought under the consortium of bank

However, soon after the Joint documentation the corporate debtor started committing default in servicing of the interest and committed default in repayment of loan. Consequently the account of the corporate debtor was declared as a Non Performing Asset on 2-3-2012 in terms of RBI guidelines

The respondent corporate debtor failed to clear the outstanding dues and did not adhere to the terms and conditions of the loan agreements. Consequently, applicant bank had initiated action against the corporate debtor under DRT.

RULING:

Pendency of proceedings before Debt Recovery Tribunal an cannot be an impediment or bar to initiate Corporate insolvency resolution process.

CASE D: In case where winding up proceedings are pending with High Court, then whether a Creditor not being part of such petition can approach to Tribunal  under IBC?

Bench NCLT, Kolkata Bench
Jai Balaji Industries Ltd
Dated 10th October, 2018

FACTS:

The State Bank of India filed application under section 7 for initiating Corporate Insolvency Resolution Process (CIRP) against the corporate debtor alleging existence of default in repayment of loan advanced to the corporate debtor.

The applicants being operational creditor of corporate debtor were opposing petition on ground that petition wending against same corporate debtor had already been admitted and is already in progress before the High Court and unless the said petition pending before High Court was finally decided, there could not be a parallel proceeding continuing before Tribunal.

The financial creditor submitted that winding up proceedings filed before the High Court had two stages namely: First stage, wherein application for winding up was filed and the High Court may admit such application on reasonable grounds, directing issue of advertisement inviting all creditors to participate in the winding up process. And the Second stage, wherein the High Court, after hearing all creditors who participated in the winding up process, on being reasonably satisfied, pased final orders of winding up/liquidation. According to the SBI the winding up proceeding in the present case was in the first stage whereby the creditors were invited to participate in the said proceeding post advertisement. And so, the Tribunal was not barred in any manner from hearing the application filed under section 7.

The winding up proceeding as against the corporate debtor has been initiated long before the date of filing of the Application by the financial creditor in this case in hand. It is significant note here that in pursuance of the advertisement, the financial creditor did not join in the winding up proceedings and approached Tribunal for invoking section 7 as against the corporate debtor pending winding up proceedings initiated by the High Court.

The corporate debtor was undergoing winding up proceedings and winding up petitions being already admitted and the High Court has not transferred the winding up proceeding before the NCLT, all the creditors are bound to join in the winding up proceedings so as to make their claims in the said proceedings. Secured and unsecured creditors have already joined in the said proceedings. Where a winding up proceedings is initiated in an application under section 433(e) of the Companies Act, 1956 by the High Court, an application filed under section 9 was held not maintainable in the above cited order.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).

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One response to “Analysis of 4 recent NCLT Ruling on Insolvency Bankruptcy Code, 2016”

  1. sneha vaza says:

    Whether a Financial Creditor initiate action against Corporate debtor under SARFAESI or DRT Act immediately after filing liquidation application or not ?

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