NCLAT:No Insolvency Process against Corporate Debtor when Winding Up has been Ordered

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June 26, 2018

Case name: Indiabulls Housing Finance Ltd. v. Shree Ram Urban Infrastructure Ltd.

In the case, the Appellant had initiated Corporate Insolvency Resolution Process against Respondent Corporate Debtor under Section 7 of the Insolvency and Bankruptcy Code, 2016.

The National Company Law Tribunal, Mumbai Bench by impugned order dated 18th May, 2018 dismissed the application as not maintainable in view of the fact that the winding up proceeding against the ‘Corporate Debtor’ had already been initiated by the High Court of Bombay.

Thus, the issue that fell for consideration before the National Company Law Appellate Tribunal was whether an application under Section 7 of the ‘I&B Code’ is maintainable when winding up proceeding against the ‘Corporate Debtor’ has already been initiated?

NCLAT

  • In appeal the NCLAT examined catena of judgments governing the issue to hold that the High Court of Bombay has already been ordered for winding up respondent-‘Corporate Debtor’, which is the second stage of the proceeding, thus question of initiation of ‘Corporate Insolvency Resolution Process’ which is the first stage of resolution process against the same ‘Corporate Debtor’ does not arise.
  • While arriving at its judgment, the NCLAT heavily relied on the case of Forech India Pvt. Ltd. Vs. Edelweiss Assets Reconstruction Company Ltd. & Anr.[1], wherein the NCLAT observed that if a ‘Corporate Insolvency Resolution’ has started or on failure, if liquidation proceeding has been initiated against the Corporate Debtor, the question of entertaining another application under Section 7 or Section 9 against the same very ‘Corporate Debtor’ does not arise, as it is open to the ‘Financial Creditor’ and the ‘Operational Creditor’ to make claim before the Insolvency Resolution Professional/Official Liquidator.
  • The NCLAT further opined that once second stage i.e. liquidation (winding up) proceedings has already initiated, the question of reverting back to the first stage of ‘Corporate Insolvency Resolution Process’ or preparation of Resolution plan does not arise.
  • In view of the facts of the present case, the NCLAT concluded that as the High Court of Bombay has already been ordered for winding up respondent-‘Corporate Debtor’, which is the second stage of the proceeding. For the said reason, we hold that initiation of ‘Corporate Insolvency Resolution Process’ which is the first stage of resolution process against the same ‘Corporate Debtor’ does not arise.

The entire case can be accessed here.

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[1] Company Appeal (AT) (Insolvency) No. 202 of 2017